Netflix’s (NFLX) Contrarian Bull Case Amid Unusual Options Activity and Widening Volatility Skew

The recent surge in Netflix’s (NFLX) options activity has painted a complex picture of market sentiment. While bearish positioning dominates short-term positioning—evidenced by a put/call ratio of 0.875 and a $2.131 million bearish trade in sold $1,200 Sept. 19 calls—contrarian investors may find fertile ground for a bullish case. This argument hinges on dissecting the interplay between widening volatility skew, open interest dynamics, and strategic options positioning.

Unpacking the Bearish Bias

The current options landscape for NFLX is marked by a 44.8% spike in volume over the trailing one-month average, with put volume at 76,931 contracts and call volume at 87,941 contracts [1]. While this suggests a bearish tilt, it’s critical to contextualize these figures. Options can be bought or sold, and the significant bearish trade in Sept. 19 calls may reflect hedging or position reduction rather than outright pessimism. Meanwhile, open interest (OI) has grown by 1.9% to 558,923 contracts, with call OI rising 2.1% and put OI up 1.7% [2]. The put/call OI ratio of 1.2, though below the 52-week average of 1.3, still signals a bearish bias. However, the 5-day decline in both put and call OI by 13.3% and 10.5%, respectively, hints at unwinding positions, potentially creating a vacuum for new bullish strategies.

Volatility Skew and Predictive Modeling

The volatility skew for NFLX reveals a critical asymmetry in market expectations. The natural skew projects a 10-week range of $1,256.73 to $1,318.80, while the conditional skew—factoring in recent 4-6-D trade patterns—narrows this to $1,186.66 to $1,290.10 [1]. This tightening suggests that the market is pricing in a more constrained price action, but it also creates a scenario where a breakout above $1,290.10 could trigger a re-rating of volatility. The skew is expected to tilt negatively around the Oct. 17 options expiration, with volatility risks rising sharply by late October and November. For contrarians, this presents an opportunity to capitalize on the market’s underestimation of NFLX’s upside potential.

Strategic Options Positioning

Two bull call spreads highlighted in recent data offer a blueprint for strategic entry. The 1,242.50/1,250 bull spread expiring Sept. 19 and the 1,280/1,290 spread expiring Oct. 17 are designed to profit from limited price movements within the projected volatility range [1]. These strategies benefit from the current low implied volatility environment and the potential for a volatility rebound as the market approaches the Oct. 17 expiration. By locking in a defined risk-reward profile, investors can hedge against the skew’s negative tilt while positioning for a potential breakout.

The Contrarian Thesis

The bearish sentiment embedded in NFLX’s options activity may be overdone. The unwinding of put positions and the narrowing volatility skew suggest that the market is discounting a prolonged downturn. However, NFLX’s fundamentals—driven by its expanding international footprint and content pipeline—remain robust. A contrarian bull case emerges when combining the technical setup (e.g., the bull spreads) with the expectation of a volatility re-rating. If NFLX breaks above the conditional skew’s upper bound of $1,290.10, the implied volatility spike could amplify gains for long call positions, particularly as the Oct. 17 expiration approaches.

In conclusion, while the immediate options data favors bears, the structural shifts in open interest and volatility skew create a compelling case for a limited but high-conviction bullish play. Strategic options positioning, coupled with a nuanced understanding of volatility dynamics, offers a path to capitalize on the market’s current mispricing of NFLX’s upside potential.

Source:[1] Netflix's (NFLX) Unusual Options Presents an Opportunity ...,
https://finance.yahoo.com/news/netflix-nflx-unusual-options-presents-173002433.html[2] NFLX Open Interest Trends Netflix,
https://marketchameleon.com/Overview/NFLX/OpenInterestTrends/