Netflix’s stock price may have lost the plot, but its fundamental narrative remains intact. Trading at 18.9x forward earnings — down near its 2022 bear-market trough (<15x) — the stock has gotten cheaper while the underlying business has gotten better.
The Highlights
Valuation: 18.9x forward earnings vs. <15x at the 2022 trough.Ad Growth: ~$3 billion expected this year, scaling toward a potential $10 billion by 2030.Option Setup: >1.5% standstill return over 25 days (>20% annualized) via a defined-risk covered strangle.
The Investment Case
When Netflix stopped highlighting subscriber adds to focus on revenue, margins, and free cash flow, growth investors departed — and value investors haven’t fully arrived because legacy media like Disney (<13x) looks cheaper on paper. However, Netflix is a far superior business:
Monetization Engine: With ~325 million paying members, Netflix offers connected TV advertisers the cleanest audience at scale. The default ad tier creates a line of sight to $10 billion in ad revenue by 2030.Capital Discipline & AI: Management is aggressively buying back stock rather than overpaying for legacy studio assets. Meanwhile, generative AI is a net positive: it reduces production, dubbing, and localization costs — a direct boost to margins for a company whose biggest expense is content amortization.Engagement: Live sports, spectacles, and AI-driven personalization directly target flatlining view times to protect pricing power.
Netflix, YTD
Paying 18.9x for today’s higher-margin, cash-generative Netflix is only four turns above the worst moment in its public history. That makes selling volatility far more attractive than buying shares outright.
The Trade: August 65/78/88 “Covered Strangle”
With Netflix around $70 and 25 calendar days to August expiration:
Sell the August 65 Put and August 78 Call.Buy the August 88 Call (upside tail hedge).Net Credit: $1.10 (~1.5% yield in 25 days, or >20% annualized).
Risk Profile:
Profitable Range: $63.90 to $79.10 (brackets ~9% downside and ~13% upside).Upside Risk: Capped at 10 points by the August 88 call.Downside Risk: If assigned below $65, your effective entry is $63.90 (~17x forward earnings)—a compelling entry price near 2022 valuation lows.
