On a day when the Dow is down triple digits, Netflix, Inc. (NASDAQ: NFLX) is down less than 1%, and shares even hit a new all-time high this morning.

The new 52-week trading range is $39.27 to $128.42. We are seeing a classic push and pull in the stock, and it feels as though we’re reaching the point where a large move has to follow one way or the other.

Often with high-price stocks that are continuing to move higher, traders will begin using options as the way to gain upside exposure rather than buying shares. Therefore, rather than forking over $125 per share for NFLX, traders can buy upside exposure for a few dollars per share. 

New short interest figures from Nasdaq came out last night, and they showed a slight drop in short selling to 8.41 million shares as of July 30 settlement versus 8.44 million shares as of July 15 settlement.

The move up initially this morning, and then down to just under $125 in midday trading, has shares well above yesterday morning’s $115 price on news of a streaming video deal for new releases with EPIX. The initial pessimism was replaced by a euphoric run. The previous all-time high was $127.96, while the stock reached $128.42 today.

Trading volume was triple the norm yesterday, and today that volume is already about 175% of normal trading volume with more than two-and-a-half hours until the market closes. 

Netflix traded almost 43,000 August contracts and more than 20,000 call options for September expiration on Tuesday. Wednesday is also seeing elevated options trading with more than 20,000 August calls traded and more than 10,000 September calls traded today. Again, this is with more than two-and-a-half hours until the market closes.

Buying an August 125 straddle would cost more than $9, implying that shares have to drop back to $116 or rise above $134 for the volatility trade to be profitable. 

For September, that premium for the straddle jumps up to almost $16.75. That requires a volatility trade breakeven of $141.75 or higher, or for it to drop to $108.25 by Sept. 17.

Thanks, but no thanks. If you are going to be using options, just pick your direction for August and buy the closest out-of-the-money put or call. Just don’t forget about the premium compression, as August options expire in just nine days. 

Basically, this is one of those instances where it is like playing poker in Las Vegas. You don’t know who you are playing against, and you don’t know what they are holding back. It can be a costly game or it can have a very high payout.

Follow Jon Ogg on Twitter @jonogg.

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