Mathematical Money | October 9, 2026
$NFLX$ closed Thursday at $71.57. That's down 23.7% this year, 42.3% below the 52-week high of $124.14, and only 6.7% above a 52-week low of $67.06 that was set on 2 October. Seven days ago.
Netflix reports third-quarter results after the close on Tuesday 20 October. I own long-dated calls on it and I had a decision to make before then, so I did what I always do before an event and wrote the number down first.
What the options board is actually pricing
I captured this on Friday morning, before the event rather than after it. The 23 October expiry, which is the first one that contains the earnings date, has an at-the-money strike of $72. The call was $3.05 at the midpoint and the put $3.35.
That's a straddle of $6.40, which on a $71.57 stock is an implied move of ±8.94% by 23 October. Break-evens of $65.60 on the downside and $78.40 on the upside.
Now put those two numbers against the chart, because that's where it gets interesting. The downside break-even of $65.60 is below the 52-week low of $67.06. In other words, a move that the options market considers completely ordinary would take this stock to a level it hasn't traded at in a year. And the upside break-even of $78.40 is still well under the 200-day moving average, which sits at $83.57. A result good enough to hit the top of the expected range leaves the stock in the same downtrend it's been in all year.
The market is pricing a big move that doesn't change anything structurally in either direction. I find that a genuinely useful thing to know before deciding how to be positioned.
The business is not the problem
Second quarter, reported 16 July. Revenue of $12.56 billion and earnings of $0.80 a share. For the third quarter the company guided to $12.86 billion, which is about 12% growth, and an operating margin of 33.2% against 28.2% in the same quarter last year.
Read that margin line again. Five points of operating margin expansion year on year, on a business already running north of 30%. Full-year guidance is $51.0 to $51.4 billion of revenue at a 31.5% margin, and the advertising tier is on track for roughly $3 billion this year.
So the stock has fallen 42% from its high while revenue compounds at low double digits and margins widen. That is not a deteriorating business. It's a multiple compressing, which is a completely different problem and tends to have a completely different ending.
The bear case, which is better than usual
Three things, and I take all of them seriously. The first is the one that would actually change my mind.
Engagement. This is the one that matters. YouTube has been taking share of US television viewing and has pushed past 13%, while Netflix sits near 7.8%, around its lowest in several years. Netflix's own disclosures have shown viewing hours per membership drifting down year on year. A subscription business where each subscriber watches less every year has a slow problem that no quarterly revenue beat really answers.
Cost. Content spend keeps rising in absolute terms and live sports is expensive in a way that scripted content isn't. The margin expansion is real today, but it's being delivered while the cost base is growing, which means it depends on price increases and ad revenue continuing to outrun it.
Competition got bigger. The merged Paramount and Warner Bros group is a more serious counterparty than either was separately, and Amazon, Disney and Apple have not gone away. None of that shows up in a margin line until it does.
The specific thing that broke the stock in July, though, was that $12.86 billion guide coming in under a consensus closer to $13 billion. The business grew. It simply grew slightly less than people had already paid for.
Where I sit, and what I've decided
I own September 2027 calls at the $60 strike, deep in the money so most of the cost is intrinsic value rather than time premium. They're down about 20%. My base case for the next twelve months is $70 to $85, with a bull case of $85 to $110 and a bear case of $50 to $65, which means at $71.57 the stock is sitting right at the bottom edge of my own base case.
Here's the part that took some thinking. I have no short calls written against this one. On my other long-dated positions I usually rent out the near-term upside, but this one is uncapped, and with earnings in eleven days that's now an active choice rather than an oversight.
The case for writing them is straightforward. Implied volatility is elevated into a print and you get paid more than usual for the same strike. The board's own upside break-even is $78.40, so writing above that level is renting out a move the market itself is saying is a coin flip at best.
The case against is the one that keeps me from doing it. If the engagement number is good, this is a stock that gaps 9% and doesn't look back, and I'd have capped the exact move I've been sitting through a 42% drawdown waiting for. Selling a call three weeks before the only catalyst that matters is a way of collecting a small certain amount in exchange for the large uncertain one.
So I'm leaving it uncapped through the print, and I'll write calls afterwards, when volatility is still reasonably priced but the binary outcome is behind me.
I'd rather be honest about what that costs. If the print is dull or bad, I will have passed up premium that was sitting there for the taking, and the position will have spent another quarter going nowhere while I collected nothing for the wait. That's the bill for staying uncapped and I've decided I'd rather pay it than cap the one move I've been holding this thing for.
What would change my mind
Not the revenue line, and not the margin. Engagement, specifically viewing hours per membership and the US viewing share against YouTube. Revenue and margin are already doing what I need them to do, and another quarter of both won't tell me anything I don't know. If hours per member fall again, then the pricing power that underwrites the whole case is working on a shrinking base, and a 31.5% operating margin on declining attention is a much worse business than the same margin on growing attention. That number is in the shareholder letter on 20 October and it's the first thing I'll read.
Two things I'd like other views on.
Do you write calls into earnings on a position you're long-term bullish on? I've gone both ways over the years and I've never settled it. The premium is genuinely better, but so is the chance you need the upside.
And on the capture itself, because I think this matters more than the trade. Does anyone else write down the implied move before an event rather than talking about it afterwards? It takes two minutes and it makes the post-mortem honest, because the number existed before the result did and nobody can argue about it later.
#NFLX #earnings #options #LEAPS #impliedvolatility
Stop guessing. Start calculating.
Live to fight another day. 🤙
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