Short interest in the Internet Retail Sector has grown by $8.7 billion, or 70%, in 2017, increasing from $12.6 billion at the end of 2017 to $21.3 billion today. Prior to the beginning of this quarterâ€™s earnings season, with Netflix Inc. (NFLX) reporting after the todayâ€™s close, short interest in the sector has increased by $571 million over the last month and $342 million over the last week.
Short exposure in Netflix Inc. has seen the largest increase over the last week with $184 million of new short interest today and $316 million over the last week â€“ traders are increasing their short positions ahead of todayâ€™s 3rd quarter earnings report. Netflix is the sixth most shorted stock in the U.S. market, still behind Amazon.com in fourth place.
Netflix has increased its subscription price in the last quarter, potentially increasing overall revenues if their subscriber base and growth rate do not decrease. Netflix last increased its subscription price in April 2016, which resulted in a lower than expected subscriber growth rate and shareholders selling Netflix shares. Netflixâ€™s stock price fell quickly, resulting in a month-long 21% price slump, before stabilizing and going on a year and a half 129% rally.
(in $ millions)
Netflix short sellers have taken a greater beating than their Marvel series villains, losing over $2 billion in mark-to-market year-to-date losses and are down 49% on the year. They are hoping for Netflixâ€™s subscription growth rate to decline due to its recent price hike and competition from Amazon.com (AMZN), Sony Corp (SNE) and YouTube Inc. (owned by Google).
Netflixâ€™s option market has also been very active, with this weekâ€™s expiry leaning towards call buyers, 51k open call contracts vs. 43k open put contracts. But option traders looking for a winning lottery ticket by buying out of the money calls and puts are leaning towards put buyers, 28k â€śout of the moneyâ€ť call contracts vs. 31k â€śout of the moneyâ€ť put contracts.Â Only 55% of call owners are out of the money while 74% of put buyers are out of the money.
Netflix equity short sellers and put option buyers are hoping for history to repeat itself and for Netflixâ€™s stock price to decline as it did after its last price hike.
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Managing Director Predictive Analytics, S3 Partners, LLC
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