Earnings
Wednesday, April 20th 2022
NFLX Earnings Crash Had Signs
Netflix NFLX had a crash today after an earnings miss that was foreshadowed by expected earnings moves implied in the options.
Summary
Netflix's earnings crash was not entirely unexpected, as the options market had already predicted a larger than usual move in the stock price. Previous earnings had seen a 21.8% decline, and options investors were expecting a 10.3% move this time. Additionally, there were downgrades to the stock leading up to the announcement.
Netflix's catastrophic earnings move, down 30% at the open, is not totally unexpected if you look at the history of the stock.
Last earnings announcement saw a 21.8% decline. The options market was expecting a 7.4% move in either direction, a larger implied move than in any quarterly earnings since July '20.
This earnings, options investors were expecting an even larger 10.3% move in the stock after earnings announcement. They certainly got that and more.
Coming up to this earnings announcement, there were also downgrades to the stock. NFLX had heretofore not seen downgrades in its earnings outlook. They received four downgrades and two upgrades.
All this information is presented graphically in the new ORATS Options Dashboard fundamental tab.
The ORATS earn move report showed anomalies too.
The expected move was 2.6% of the stock price greater than the history average of the last 12 quarters of move.
The options market expected NFLX implied volatility to fall back down to below the historical 90 day volatility average after earnings is announced, falling from 59.2% yesterday to 45.4% expected levels after earnings. Historical volatility in not earnings days is 48.3%.
Taken together, NFLX showed signs of an earnings blowup going into last afternoon's announcement.
Disclaimer:
The opinions and ideas presented herein are for informational and educational purposes only and should not be construed to represent trading or investment advice tailored to your investment objectives. You should not rely solely on any content herein and we strongly encourage you to discuss any trades or investments with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. Option trading and investing involves risk and is not suitable for all investors.
All opinions are based upon information and systems considered reliable, but we do not warrant the completeness or accuracy, and such information should not be relied upon as such. We are under no obligation to update or correct any information herein. All statements and opinions are subject to change without notice.
Past performance is not indicative of future results. We do not, will not and cannot guarantee any specific outcome or profit. All traders and investors must be aware of the real risk of loss in following any strategy or investment discussed herein.
Owners, employees, directors, shareholders, officers, agents or representatives of ORATS may have interests or positions in securities of any company profiled herein. Specifically, such individuals or entities may buy or sell positions, and may or may not follow the information provided herein. Some or all of the positions may have been acquired prior to the publication of such information, and such positions may increase or decrease at any time. Any opinions expressed and/or information are statements of judgment as of the date of publication only.
Day trading, short term trading, options trading, and futures trading are extremely risky undertakings. They generally are not appropriate for someone with limited capital, little or no trading experience, and/ or a low tolerance for risk. Never execute a trade unless you can afford to and are prepared to lose your entire investment. In addition, certain trades may result in a loss greater than your entire investment. Always perform your own due diligence and, as appropriate, make informed decisions with the help of a licensed financial professional.
Commissions, fees and other costs associated with investing or trading may vary from broker to broker. All investors and traders are advised to speak with their stock broker or investment adviser about these costs. Be aware that certain trades that may be profitable for some may not be profitable for others, after taking into account these costs. In certain markets, investors and traders may not always be able to buy or sell a position at the price discussed, and consequently not be able to take advantage of certain trades discussed herein.
Be sure to read the OCCs Characteristics and Risks of Standardized Options to learn more about options trading.
Related Posts
