To The Moon

Netflix Sees Rising Demand for Options That Can Shield Against Slump

$Netflix(NFLX)$   saw increasing demand for put options that can protect their holders against a continued slump for shares that have already tumbled 23% since the end of June. 

Shares declined almost 5% Wednesday to close at its lowest level since April, amid concerns that a potential deal to buy $Warner Bros. Discovery(WBD)$   could weigh on the stock of the dominant streaming company. 

Put options that give their holders the right to sell Netflix shares at a specified strike price saw volume climb to 254,610 contracts, each representing 100 shares. That's more than double yesterday's total of 106,090 and the five-day average of 152,053. 

Netflix offered mostly cash for Warner Bros., which wants to be paid $30 a share, Bloomberg News reported yesterday, citing people familiar with the matter. A potential deal, which could be worth more than $70 billion, “would be both costly and a major distraction” for Netflix, Bloomberg Intelligence analysts Geetha Ranganathan and Raveeno Douglas wrote in a note Wednesday. 

While they acknowledged that a deal offers synergy potential, “it's far from a must-have” for Netflix, and could trigger antitrust concerns, they said.

Put options that give their holder the right to sell Netflix shares at $100 each in 16 days is the most active contract tied to the streaming giant outside of those expiring this week. Volume jumped almost 12-fold to about 13,078 contracts, as the share price fell near that strike price, bolstering the odds that the put option will be in the money by next week.

The stock's decline has taken its 50-day moving average near its 200-day moving average. A decline in the 50-day moving average below the 200-day average would result in what technical analysts call a “death cross,” an indicator to some who study charts that the downtrend could worsen.

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