Netflix is Still Cheap Here - Shorting Out-of-the-Money Puts Works Well

Core Viewpoint - Netflix, Inc. has completed a 10-for-1 stock split, significantly reducing its share price, which enhances the ability to sell short out-of-the-money put options for income [1]. Group 1: Stock Split Impact - The stock split reduced Netflix's share price from over $1,100 to $107.58 as of November 28, making it easier to engage in options trading [1]. - The stock split allows for less collateral to be required when selling short put contracts, facilitating a lower potential buy-in point for investors [1]. Group 2: Valuation and Analyst Outlook - Analysts believe Netflix is undervalued, with an average price target of $134.44 from 49 analysts surveyed, and a mean survey price of $136.68 per share from Barchart [4]. - Based on strong free cash flow, Netflix was previously valued at $137.40 per share, indicating a potential upside of 27.7% from the current price [3]. Group 3: Options Trading Strategy - A strategy discussed involves shorting out-of-the-money put options, specifically recommending the $106.50 put option expiring on November 28, which provided a one-month yield of 1.75% [6]. - The collateral required for shorting put options has decreased significantly post-split, now only requiring $10,650 to secure a position compared to $106,500 before the split [8]. - A new short play with a $106.50 strike price has a mid-point premium of $2.79, yielding 2.62% for a strike price only 1% lower than the trading price [9].