Netflix Is Attractive to Value Buyers - Shorting Puts Can Set a Lower Buy-In Point

Netflix Inc (NFLX) stock looks attractive to value investors here, given its strong free cash flow. One play that makes sense is shorting 5% out-of-the-money puts. That play yields over 3.0% for an expiry of just over one month. This article will show how to do this play.

NFLX is at $93.48 in midday trading on Friday, March 27. That's up from a recent low after the company walked away from its bid for Warner Bros Discovery (WBD).

Moreover, yesterday, Netflix announced a comprehensive subscription price increase, which will increase its revenue and cash flow. That will push its underlying value higher.

Strong Free Cash Flow (FCF) Could Push NFLX Higher

Last quarter, Netflix generated $1.872 billion in free cash flow (FCF) on $12.05 billion in revenue. That represented a FCF margin of 15.5%, and for all of 2025, it was 20.94% (i.e., $9.46 billion / $45.18 billion revenue).

The lower Q4 margin was likely due to higher expenses related to its dropped acquisition bid. Those won't be a factor going forward for 2026.

Moreover, analysts now expect revenue to rise to between $52.1 billion and $58.2 billion over the next 2 years. That works to $55.15 billion for the next 12 months (NTM).

As a result, we can forecast that FCF will rise from $9.5 billion last year to $11.6 billion:

  $55.15b NTM revenue x 0.21 FCF margin = $11.58 billion FCF NTM

That implies a much higher price target for Netflix. For example, using a 2.385% FCF yield metric, which is the same as a 42x FCF multiple:

  $11.6b x 42x = $487 billion mkt cap

That's +22.8% higher than its present market value of $396.6 billion, according to Yahoo! Finance. In other words, NFLX's price target (PT) is almost $115:

  1.228 x  $93.48 = $114.79

Analysts Agree NFLX is Undervalued

Other analysts agree with this PT. For example, Yahoo! Finance reports that 50 analysts have an average PT of $113.21. Similarly, Barchart's mean analyst survey price is $114.67.

And Anachart.com, which tracks recent analysts' recommendations, reports that 32 analysts have an average PT of $110.53.

Moreover, analysts are likely to raise their PTs after the recent subscription price hike news.

This is why value investors are very keen on NFLX stock now. It looks very cheap. However, there is no guarantee it won't dip from here.

As a result, it makes sense to set a lower potential buy-in price. One way to do this, and get paid while waiting, is to sell short out-of-the-money (OTM) one-month put options.

Shorting OTM NFLX Puts

For example, look at the May 1 expiry period, just 35 days from now. The $89.00 strike price put option contract, which is 5% lower than today's price, has an attractive premium of $2.90.

That implies that a short-seller can make an immediate yield of 3.26%:

  $2.90/$89.00 = 0.03258 = 3.258% one-month yield

Moreover, for more risk-averse investors, the $88.00 put contract has a 2.94% yield:

  $2.59/$88.00 = 0.0294 - 2.94% yield

That strike price has a 0.29 delta ratio - implying less than a 30% chance, based on past volatility, that NFLX will fall to $88.00 on or before May 1.

However, even if that happens, the investor who shorted these puts by securing $8,880 in cash or buying power with their brokerage firm will have a lower breakeven point (B/E):

  $88.00 - $2.59 = $85.41 B/E

That means an investor will have an 8.4% lower buy-in price compared to today's price. Meanwhile, the investor gets to keep the income received from shorting these puts.

The bottom line here is that NFLX stock looks cheap, and shorting OTM puts is one way to play it.