A reversal signal appears! Netflix (NFLX.US) has been mired in a bear market for a year, and pre-performance options bullish sentiment is heating up

The Zhitong Finance App learned that Netflix (NFLX.US) experienced a year-long bear market, with a cumulative decline of nearly 20% during the year, and its stock price was sold off after the previous four earnings reports were released. However, before Netflix announced its earnings report on Thursday, options traders' bullish sentiment heated up significantly.

According to data from ThinkOrSwim, the volume of call options linked to Netflix was almost three times that of put options last Friday and this Monday for two consecutive trading days. Meanwhile, one of the most popular trades is selling an affordable put option.

The technical side also showed positive signs. Netflix's stock price is currently around $75, which is the same level as when the company abandoned the acquisition of Warner Bros. Discovery in February. At the end of 2021, Netflix's stock price also began to plummet near this price, falling as much as 80%. After many years of rebound, it peaked at $134 in June last year.

Netflix stock price trend

Todd Gordon, founder and chief investment officer of Inside Edge Capital, said in an email: “Netflix is testing the rising 200-week moving average and the $70 point that once formed resistance since the end of 2021 and eventually broke through. If the $70 technical support level holds, it may be time to consider buying Netflix again.”

According to Cboe LiveVol data, current options pricing indicates that Netflix's stock price will fluctuate 7.6% after the earnings report is released, compared to the average actual fluctuation of 7.4% over the past year. Netflix's stock price fell after the release of the last four earnings reports, while it continued to rise after the previous three earnings reports were released.

Media observers pointed out that audience participation declined because the company had yet to launch blockbusters in the past quarter. According to Nielsen's data, Netflix's share of TV ratings has fallen to a new low in more than a year.

Rich Greenfield, co-founder of LightShed Partners and TMT analyst, said, “Netflix hasn't released a blockbuster this year. Nielsen's data shows that user participation in the US market has increased, but against the backdrop of an increase in the total number of subscribers, the viewing time for a single user has declined slightly. Users of the new ad package are likely to spend less time watching than the original members without ads. Changes in the user structure are part of the trigger, and increased competition in the industry has also had a negative impact.”

The most traded options contract on Monday was a put option that expires on Friday and has an exercise price of $75. A high-value seller sold 500 copies of the contract and recorded nearly 150,000 US dollars, boosting the popularity of the contract. According to SpotGamma data, out of a total of 20,000 transactions on this option contract on Monday, about 15,000 were sales transactions.

Netflix is about to release earnings, Wall Street is optimistic

Netflix will announce second-quarter results after the US stock market on Thursday. The market expects earnings per share of 0.79 US dollars, and revenue of about 12.58 billion US dollars. The company previously predicted second-quarter revenue of about US$12.57 billion, an increase of about 13.5% year-on-year, while maintaining the annual revenue forecast of US$50.7 billion to US$51.7 billion.

Advertising remains Netflix's key business area, and its global advertising business has surpassed 250 million monthly active viewers. The company also said it plans to double ad revenue to about $3 billion by 2026, and plans to expand lower-cost ad subscription services to more international markets.

Investors are also expected to keep a close eye on Netflix's subscriber trends, ad monetization, and content spending updates, especially after co-founder Reed Hastings recently stepped down as chairman.

According to Tipranks data, overall, Wall Street analysts are still optimistic about Netflix. The consensus rating is “Strong Buy,” and the average target price is $112.70, which is 53% higher than the current level.