Here's how much Netflix will move on earnings: Trader

Here's how much Netflix will move on earnings: Trader

Netflix shares are soaring. The stock was up more than 5 percent Monday after receiving an upgrade to "buy" from "neutral" from UBS. The firm also raised its price target on the stock by 35 percent to $565 from $370. And some options traders are expecting even bigger moves after the company reports first-quarter earnings Wednesday afternoon.

"The options market is implying a 10 percent move in either direction," said Stacey Gilbert, head of derivative strategy at Susquehanna, on Monday's "Trading Nation." Netflix shares are already up 40 percent year to date.

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According to Gilbert, traders can use the options market to gauge how much a stock is going to move. Specifically, Gilbert looked to what is called a straddle, which measures the cost of owning the at-the-money put and call of the same expiration.

Specifically, Gilbert looked at April 455-strike calls for $22.55 each and the 455-strike puts for $22.70 each. "The total cost of this straddle is $45.45. That means Netflix shares would have to move plus/minus $45.45 from current levels in order for me to break even on this trade," added Gilbert.

According to Gilbert, that $45 range—the cost of the straddle—effectively measures how much options traders see Netflix's stock moving. That's because it's how much traders are willing to pay for upside and downside exposure.

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"With Netflix expected to report earnings on April 15, and these options expiring on April 17, the majority of the options pricing is attributable to earnings," said Gilbert. "That is the biggest event for Netflix shares [this] week."

Of course, the sizable move is not uncommon for Netflix post-earnings. As Gilbert pointed out, over the past two years Netflix has rallied as much as 24 percent or sold off as much as 19 percent on earnings.

Wall Street analysts are expecting Netflix to earn 63 cent per share in the first quarter, according to FactSet.

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