Netflix: Up More Than 300% in Under Year; Vol Collapses

I found this Netflix (NFLX) using a real-time custom scan I built that hunts for calendar spreads between the front two monthly expiries. But this one also has a compelling overall vol story to it... very compelling as the stock breaches new annual highs and is up more than 300% in the last nine months.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 > 7
IV30™ GTE 30
Average Option Volume GTE 1,200

Let’s start with the Skew Tab to examine the month-to-month and line-by-line vols.


We can see the vol divergence between the May options (expiring in five trading days) and the Jun options. I also note the parabolic shape in the May options, meaning the the vol diff grows as we move to the OTM options. While this vol diff is interesting, there’s more to this than that…

The one-year NFLX Charts Tab is included (below). The top portion is the stock price the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

First, the stock chart is awesome. A firm which total stunned Hollywood traded as high as $300, then collapsed to ~$50 from new entrants (competition). But then the turnaround started… Ladies and gentlemen, welcome to one of the most important content creators in the industry. The stock is trading over 400% of its prior low value in less than one-year and has breached an annual high in stock price today.

But, it’s the vol that caught my eye, not the stock rise… Or, really, better said, it’s the vol in relation to this stock rise. Let’s turn to the one-year IV30™ chart below.


Simply said, the vol is trading right at annual lows (~41% as of this writing). While the firm did just report earnings on 4-22-2013, that vol is really low relative to the historical realized levels. Here are a few of the HV measures:

HV20™: 85.46%
HV30™: 75.21%
HV180™: 74.48%

Check out that HV180™ number – that’s 180 trading days, so ~9 months. With the explosive move in this stock over the last nine (ish) moths (~320% growth) and the level of the historical realized vols in the short- and long-terms, I just don’ get this level of the implied.

Finally, let's look to the Options Tab (below).


Across the top we can see the monthly vols are priced to 52.86% and 41.67%. It’s that vol diff that triggered the calendar spread scan. A 40% vol in NFLX given the last year feels… low… right? Ya know, or not…

Disclosure: This is trade analysis, not a recommendation.

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