---
title: "Netflix woes setting up for a Hollywood ending, says trader Mike Khouw"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/293961078.md"
description: "Trader Mike Khouw suggests Netflix's stock decline presents a buying opportunity, citing strong fundamentals and a valuation of 18.9x forward earnings near 2022 lows. He highlights ad growth potential, capital discipline, and AI-driven margin improvements. Khouw recommends selling an August 65/78/88 covered strangle to generate over 20% annualized yield, with downside risk capped at an effective entry price of $63.90."
datetime: "2026-07-27T17:25:45.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/293961078.md)
  - [en](https://longbridge.com/en/news/293961078.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/293961078.md)
generator: "portal-rs"
---

# Netflix woes setting up for a Hollywood ending, says trader Mike Khouw

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:

1.  **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.
2.  **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.
3.  **Engagement:** Live sports, spectacles, and AI-driven personalization directly target flatlining view times to protect pricing power.

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.

Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.

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---
> **Disclaimer: This article is for reference only and does not constitute any investment advice.**