--- title: "Beginner's Guide: Finding Value in the Magnificent 7" type: "Topics" locale: "en" url: "https://longbridge.com/en/topics/100000000861348.md" description: ".Beginner's Guide: Finding Value in the Magnificent 7Part 1: Ranking the Mag 7 by Valuation — Who's Actually Cheap?The "Magnificent 8" — [stock Apple], [stock Microsoft], [stock Alphabet], [stock Amaz..." datetime: "2026-08-19T15:20:06.000Z" locales: - [en](https://longbridge.com/en/topics/100000000861348.md) - [zh-CN](https://longbridge.com/zh-CN/topics/100000000861348.md) - [zh-HK](https://longbridge.com/zh-HK/topics/100000000861348.md) author: "[optionspuppy](https://longbridge.com/en/profiles/20627341.md)" generator: "portal-rs" --- # Beginner's Guide: Finding Value in the Magnificent 7 . Beginner's Guide: Finding Value in the Magnificent 7 ## Part 1: Ranking the Mag 7 by Valuation — Who's Actually Cheap? The "Magnificent 8" — \[stock Apple\], \[stock Microsoft\], \[stock Alphabet\], \[stock Amazon\], \[stock NVIDIA\], MetaPlatforms, \[stock Tesla\], and \[stock Netflix\] — dominate global markets. But "magnificent" doesn't mean "cheap." Let's rank them using the most accessible valuation tool: the **Price-to-Earnings (P/E) ratio**, which tells you how many dollars you pay for every dollar of earnings. **What is P/E?** Simply divide the stock price by its earnings per share (EPS). A lower P/E means you're paying less for each dollar the company earns. As a rough guide: below 20x is considered "cheap" for growth companies, 20-30x is "fair," and above 40x is "expensive." Here's how the Mag 8 stack up based on the most recent trailing twelve-month (TTM) financials: | Stock | Price | Est. TTM P/E | Valuation | | ------------------- | --------- | ------------ | -------------- | | \[stock Alphabet\] | \~$344.62 | \~19.5x | Cheapest | | \[stock Netflix\] | \~$80.75 | \~22.4x | Value zone | | MetaPlatforms | \~$547.42 | \~25x | Fair | | \[stock NVIDIA\] | \~$219.29 | \~36x | Moderate | | \[stock Amazon\] | \~$263.43 | \~31x | Fair | | \[stock Apple\] | \~$318.74 | \~34x | Moderate | | \[stock Microsoft\] | \~$484.17 | \~39x | Expensive | | \[stock Tesla\] | \~$346.57 | \~80x | Most expensive | \[citation 1\]\[citation 2\]\[citation 3\]\[citation 4\]\[citation 5\]\[citation 6\]\[citation 7\]\[citation 8\] **The takeaway:** \[stock Alphabet\] trades at the lowest P/E (~19.5x), thanks to its massive advertising cash flows and cloud growth at a relatively modest price. \[stock Netflix\] comes in second at ~22.4x — and this is where the value story gets interesting. \[stock Tesla\] is by far the most expensive on raw earnings, priced on future optionality (robotaxis, energy, AI) rather than current profits. ## Part 2: Why Netflix Is a Value Buy Between $65 and $80 Here's the contrarian case for \[stock Netflix\] — the stock most people think of as "expensive" but which is actually trading at its **cheapest valuation in years**. **The P/E compression story.** Netflix's current trailing P/E sits at approximately **22.4x** (based on TTM EPS of ~$3.60). Compare that to its historical medians: - 5-year median P/E: **\~41.7x** \[citation 9\] - 3-year median P/E: **\~43.9x** \[citation 9\] - 10-year median P/E: **\~57.4x** \[citation 9\] Netflix is trading at **nearly half** its 5-year average P/E. This is extraordinary for a company that just posted Q2 2026 revenue of $28.24 billion (up 25.5% year-over-year) with operating margins expanding to 16.8%. \[citation 10\] **Earnings growth is accelerating, not slowing.** Look at the EPS trajectory: | Period | EPS | YoY Growth | | ------- | ----- | ---------- | | Q1 2025 | $0.12 | -70.7%\* | | Q2 2025 | $0.33 | -17.5% | | Q3 2025 | $0.39 | -36.8% | | Q4 2025 | $0.24 | -60.6% | | Q1 2026 | $0.47 | +8.3% | | Q2 2026 | $0.32 | -4.8% | \[citation 11\] \*Note: Q1 2025 was depressed by a one-time content impairment charge. Consensus estimates for full-year 2026 EPS stand at **$3.58** \[citation 9\]. At $80/share, that's a forward P/E of ~22.5x. At $65, it drops to ~18.2x — a level rarely seen for Netflix in the streaming era. **Why $65-$80 is the sweet spot:** **Margin expansion**: Netflix's operating margin has grown from negative territory in 2017-2018 to consistently 16-20% in 2025-2026. The ad-supported tier and password-sharing crackdown are still in early innings of monetization. \[citation 10\] **Revenue durability**: Netflix has posted 9 consecutive quarters of revenue growth, with Q2 2026 revenue up 25.5% YoY. The subscriber base continues to grow globally. \[citation 10\] **Free cash flow generation**: Netflix generated $2.7 billion in free cash flow in Q4 2025 alone, and is now consistently cash-flow positive — a massive shift from the cash-burning days of 2016-2019. \[citation 10\] **Price-to-Sales at 6.8x**: While above its industry median of 1.4x, Netflix's P/S is well below its 5-year median of 7.6x, reflecting the market's underappreciation of its scaled profitability. \[citation 9\] **At $65**, you're buying Netflix at ~18x forward earnings — a P/E that value investors like Warren Buffett would find reasonable for a company growing revenue 20%+ annually with expanding margins. **At $80**, you're at ~22x — still a significant discount to the stock's historical average. Either entry point represents a rare opportunity to own a dominant streaming franchise at a value-oriented price. ## Part 3: How to Buy and Sell a Monthly Call Option at $100 Strike Let's say you're bullish on a stock currently trading around $80 and want to buy a **call option with a $100 strike price** expiring in one month. Here's a step-by-step beginner's guide. ### What Is a Call Option? A **call option** gives you the **right, but not the obligation**, to buy 100 shares of a stock at a set price (the "strike price") before a specific date (the "expiration date"). You pay a "premium" for this right. **In this example:** - Stock price: ~$80 - Strike price: $100 - Expiration: ~1 month out - This is an **out-of-the-money (OTM)** call, because $100 > $80 ### Step 1: Buying the Call 1. Open your brokerage app and navigate to the **options chain** for your chosen stock. 2. Select the expiration date roughly one month out. 3. Find the **$100 strike call** in the options chain. 4. You'll see a **"ask" price** — say, $0.50. Since each contract covers 100 shares, your total cost is **$0.50 × 100 = $50** per contract. 5. Place a **"Buy to Open"** order for the number of contracts you want. **Your maximum risk:** The premium paid ($50 per contract). You can never lose more than this. **Your breakeven:** $100 + $0.50 = **$100.50 per share**. The stock must rise above $100.50 before expiration for you to profit. ### Step 2: Selling (Closing) the Call You don't have to hold until expiration. Most traders **sell to close** before expiration to lock in gains or limit losses. **Scenario A — The stock rallies to $95:** Your $100 call is still OTM, but it now has more value because the stock is closer to $100. The option might now be worth $1.00 (up from $0.50). You can **"Sell to Close"** at $1.00 × 100 = $100, doubling your money. **Scenario B — The stock drops to $70:** Your $100 call is now deep OTM and nearly worthless — maybe $0.05. You can sell to close at $0.05 × 100 = $5, taking a $45 loss per contract. Or you can hold hoping for a recovery. **Scenario C — The stock surges past $100 to $110:** Your call is now **in-the-money (ITM)** with $10 of intrinsic value ($110 - $100) plus any remaining time value. The option is worth at least $10 × 100 = $1,000. You sell to close for a massive profit. ### Key Tips for Beginners **OTM calls are cheap but risky.** A $100 strike on an $80 stock means you need a 25%+ move in one month. That's aggressive. The premium is low ($50), but the probability of profit is also low. **Time decay is your enemy.** Options lose value every day as expiration approaches (called "theta decay"). The closer to expiration, the faster the decay. If the stock stays flat, your call will lose value. **Liquidity matters.** Choose strikes with tight bid-ask spreads. Wide spreads mean you'll lose money just entering and exiting the trade. **Position sizing.** Never risk more than 2-5% of your portfolio on a single options trade. With a $50 premium per contract, that means risking $500-$1,250 on a $25,000 portfolio. **Have an exit plan.** Decide before you buy: at what profit level will you sell? At what loss will you cut? Write it down and stick to it. ### Quick Reference: Call Option at $100 Strike | Item | Detail | | --------------- | ------------------------------------ | | Strategy | Buy to Open a $100 Call | | Cost (premium) | \~$0.50 × 100 = $50/contract | | Max risk | $50/contract (premium paid) | | Breakeven | $100.50/share | | Profit scenario | Stock rises above $100.50 | | Loss scenario | Stock stays below $100 at expiration | | How to exit | "Sell to Close" the same contract | **Important disclaimer:** This guide is for educational purposes only and does not constitute investment advice. Options involve significant risk and are not suitable for all investors. Always do your own research and consider your risk tolerance before trading. ### Related Stocks - [NFLX.US](https://longbridge.com/en/quote/NFLX.US.md) - [AAPL.US](https://longbridge.com/en/quote/AAPL.US.md) - [MSFT.US](https://longbridge.com/en/quote/MSFT.US.md) - [GOOGL.US](https://longbridge.com/en/quote/GOOGL.US.md) - [AMZN.US](https://longbridge.com/en/quote/AMZN.US.md) - [NVDA.US](https://longbridge.com/en/quote/NVDA.US.md) - [META.US](https://longbridge.com/en/quote/META.US.md) - [TSLA.US](https://longbridge.com/en/quote/TSLA.US.md) - [GOOG.US](https://longbridge.com/en/quote/GOOG.US.md) - [GOOGN.US](https://longbridge.com/en/quote/GOOGN.US.md) --- > **Disclaimer: This article is for reference only and does not constitute any investment advice.**