Netflix Inc. (NFLX) stock has been on a tear in 2015, with NFLX stock up more than 169% with less than a month until the new year. Furthermore, Netflix stock appears poised to end 2015 with a bang, as shares broke out to a fresh all-time high north of $130 on Friday.
Despite strong Netflix stock price action, a large bearish contingent continues to bet against the stock — one that could represent untapped sideline money should NFLX continue its year-end rally.
For evidence of the wall of worry facing Netflix stock, we need look no further than the brokerage community. In fact, Thomson/First Call reports that 18 of the 43 analysts following Netflix stock still rate the shares a “hold” or worse.
Additionally, the 12-month consensus price target for Netflix stock rests at $125 per share, representing a discount to the stock’s current perch. This bearish backdrop leaves plenty of room for potential price-target increases or ratings upgrades as NFLX breaks out to new all-time highs.
Short sellers are also betting heavily against Netflix stock. As of the most recent reporting period, roughly 46 million NFLX shares were sold short, accounting for nearly 11% of the stock’s total float. These open short positions could provide considerable fuel for potential covering rally as NFLX heads higher.
Finally, NFLX puts remain quite popular among speculative traders. Currently, the December put/call open interest ratio for NFLX rests at 1.16, with puts easily outnumber calls among short-term options. Not only does this indicate a negative stance from speculative traders, the lack of call OI hints that short sellers are not hedging their positions, and thus are not worried about a continued rally from Netflix stock.
Click to EnlargeLooking at implieds, there is the possibility for a sizable move for Netflix stock, as weekly December 11 series options are pricing in a potential move of nearly 7% for NFLX. This places the upper bound at $138.73, while the lower bound lies at $121.27.
2 Trades for Netflix Stock
Call Spread: Those traders looking to bet on a year-end rally for Netflix stock might want to consider a December $130/$135 bull call spread. At last check, this spread was offered at $2.42, or $242 per pair of contracts. Breakeven lies at $132.24, while a maximum profit of $2.76, or $276 per contract, is possible if NFLX closes at or above $135 when December options expire.
Put Sell: Traders who aren’t comfortable with an outright bullish play might want to consider a put sell strategy on NFLX. At last check, the December $110 put was bid at 22 cents, or $22 per contract. As long as NFLX trades above $110 through December expiration, traders who open this position will keep the initial premium received. However, if NFLX trades below $110 before expiration close, you may be assigned 100 shares of Netflix stock for each contract sold at a cost of $110 each.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
