Poor Earnings In Netflix Stock Set Up Option Trade For Weakness

Core Viewpoint - Netflix's stock has experienced a significant downturn following a disappointing earnings report, despite a year-to-date increase of 23% [1][2]. Financial Performance - Netflix reported earnings per share of $5.87, which fell short of analyst expectations of $6.97 per share [2]. - Revenue met expectations at $11.51 billion, but the company cited a Brazilian tax dispute as a negative factor impacting results [2]. - The forward guidance provided by Netflix was described as "uninspiring," indicating potential challenges ahead [2]. - Despite the earnings miss, the reported figures still show healthy growth compared to the previous year, but they do not justify the stock's high valuation, which currently stands at a price-to-earnings (P/E) ratio of 46 [2]. Investment Strategies - For investors anticipating further weakness in Netflix stock, a bear put spread is suggested as an effective strategy [3]. - A bear put spread involves buying a put option while selling a lower strike put option, allowing for limited downside risk [4][6]. - The current trade can be executed for a debit of approximately $5.65, with a maximum loss of $565 for a block of 100 shares if shares remain above 1,050 at expiration [5]. - The maximum profit potential is calculated as $1,435 if shares trade below 1,030 at expiration [5]. - This strategy is particularly suited for highly liquid stocks like Netflix, providing better risk control compared to shorting shares [6].