Netflix, Tesla Earnings to Tell Market's Next Move - Watch Options Market for Cues

investing.com:

There are a few things on markets that I have come across over the past few days. The first and most obvious is that OPEX is now behind us, meaning that some of the flows that have supported the S&P 500 and NASDAQ are, likewise, behind us.

It is clear to me that today’s options market is more important than ever. If you aren’t paying attention to the positioning of the options market, I think you are doing yourself a great disservice. It isn’t just about the biggest call-and-put positions but also about the direction of implied volatility and, more importantly, where the gamma and delta positions are.

We can try an experiment this week and see how it goes:

Netflix (NASDAQ:NFLX) and Tesla (NASDAQ:TSLA) are reporting results, and what the companies say may not affect where the stocks go following their results.

What may matter more is where and how the options are positioned, and we can do fairly easy exercises to see if this proves right or wrong. Let’s start with Netflix, and let’s not even worry about the earnings and estimates; instead, let’s focus on how the options market is positioned. Remember, this is for fun.

Netflix closed around $483 on Friday, and when looking at the SKEW based on the LIVE data from Bloomberg by strike price, it is fairly easy to see that Implied Volatility for the January 26 OPEX is skewed to the calls, with IV rising consistently, the higher strike prices go.

We can also see that a great amount of call delta for the stock comes at $500, which means that there is a good chance, given that IV skewed higher and to the calls, that most of that Delta is due to investors buying call positions, which means that market makers are hedged long in Netflix.

So, in theory, how this could work is that