NFLX Earnings Stock Reaction: Market Expectations vs Actual
Investors and traders often look to earnings announcements as key events that can cause significant stock price movements. One intriguing way the market signals its expectations for a stock’s post-earnings price reaction is through the pricing of options, particularly straddles.
With Netflix’s (NFLX) stock recently soaring 10.7% post-earnings, two interesting questions arise:
1. What did the market expect for Jan 23 earnings?
2. Does the market tend to underestimate or overestimate NFLX’s earnings moves?
To help answer this question we will compare historical implied moves against NFLX actual moves.
A Historical Visualization: NFLX Implied Earnings Moves vs Actual
When interpreting the chart provided above, note the following: the up/down brackets represent the historical expected moves based on option prices. The green bars extending upwards indicate actual up moves, while red bars descending show actual down moves.
If a colored bar exceeds the bracket, it indicates that the actual move was larger than what the market priced in before the announcement.
Market Chameleon Provided A Summary Of The Data
source: Market Chameleon
History Shows The Market Tended To Underprice NFLX Earnings Moves
Our analysis reveals that the market underpriced NFLX’s moves 54% of the time. Historically, the market implied a move of +/- 8.8%, while the actual average move was around 11.9%. This differential of approximately 3% is substantial in options trading.
Latest Earnings: History Was On Your Side
The most recent pre-earnings straddle for NFLX implied an 8.2% move. The stock surged by 10.7%. Traders who leveraged these historical patterns found themselves at an advantage.
Conclusion
Analyzing historical data can offer valuable insights into potential market behaviors. In the case of NFLX, earnings moves have historically been dramatic, averaging a significant 11.9% change. It appears that traders have frequently underestimated the actual moves. Utilizing these historical benchmarks can be a crucial strategy for planning potential trading approaches, especially when considering recent earnings releases.
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Originally Posted January 24, 2024 – Do Options Traders Tend to Underestimate NFLX Earnings Moves? A Market Chameleon Analysis
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