By Doris Frankel
CHICAGO (Reuters) - Traders and investors in Netflix are bracing for a sizable move in the stock's price after earnings on Monday afternoon -- just not as big as usual.
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The price of the movie rental company's stock is expected to move by as much as 10 percent by the end of this week, based on its short-term options trading. That would be less than normal.
The volatile stock usually moves 13 percent on the day after earnings, judging by the last eight quarters, according to Bespoke Investment Group of Harrison, New York.
"The options market is telling us that it expects a lower price-range move compared to the past four earnings events," said Steve Place, a founder of option analytics firm investingwithoptions.com in Mobile, Alabama.
"But I think the options market may be wrong and is underpricing the move," Place said.
Netflix earnings are set to be released shortly after the closing bell.
The front week at-the-money $250 straddle priced at $23.97 on Monday suggests a move of about 9.6 percent in either direction by Friday, Place said. A straddle is a volatility play that involves buying a put option and a call option with the same strike price and expiration date.
TD Ameritrade chief derivatives strategist Joe Kinahan said the weekly options expiring this Friday are pricing in a move of just over 8 percent up or down.
Betting appears to be leaning slightly to the bearish side, although bearish bets on Netflix Inc. <NFLX.O> have been losers, with the stock up 355 percent since 2010 began.
Options volume is heavy in Netflix as about 63,000 contracts traded through the first half of Monday's session, led by short-term weekly $215 and $250 strike puts expiring this Friday, compared with the stock's current price of $251.74.
Weekly $295 and $290 calls as well as the $210 puts were also popular, according to option analytics firm Trade Alert.
In the last eight quarters, the average absolute post-earnings day move has been 13.2 percent, and 14.1 percent over the last four quarters, according to Bespoke.
PLENTY OF SHORT BETS
The shares have been a favored target of short-sellers for months. However, except for a brief sell-off in mid-February, Netflix has risen steadily.
Netflix shares touched an all-time high on Monday of $254.98 in advance of first-quarter earnings. The high level of short interest could push the rally further if numbers are strong. The consensus is for earnings of $1.08 a share, according to Thomson Reuters I/B/E/S.
Bulls on Netflix argue the company will continue to expand its reach, taking share from cable companies and others.
Bears say the stock is overvalued, and Thomson Reuters StarMine data supports that idea, putting the stock's intrinsic value at just $87.10, based on a compound annual growth rate of 15 percent annually over the next 10 years.
In contrast, the stock's price now implies growth of 27 percent annually over the next decade.
Nearly 20 percent of the outstanding float is being shorted, and its high institutional ownership and high volatility make shorts vulnerable, according to Thomson Reuters StarMine data.
StarMine puts Netflix's short squeeze indicator at 90 on a scale of 1 to 100 in terms of likelihood of a short squeeze. This occurs when a stock rises and investors who sold it short rush in to buy shares to limit losses.
The heavy activity in the weekly $215 puts -- which would imply substantial losses from the current price -- suggests worry that the stock will fall.
Over the past 10 trading days, investors have bought 1.06 puts for every call option as a new position on U.S. options exchanges, according to Schaeffer's Investment Research.
The data is from the International Securities Exchange, owned by Deutsche Boerse's <DB1Gn.DE> Eurex unit, Nasdaq OMX Group Inc's <NDAQ.O> PHLX options venue and the Chicago Board Options Exchange, owned by CBOE Holdings Inc <CBOE.O>.
(Reporting by Doris Frankel; Editing by Jan Paschal)