To The Moon

Netflix's Worst Slump Since 2023 Spurs Demand for Put Options

$Netflix(NFLX)$   shares tumbled 10%, their worst decline in more than three years Wednesday, spurring demand for put options that could protect against continued slump. 

Put options that give their holders the right to sell Netflix shares at $1,100 in two days attracted the heaviest trading so far among contracts tied to the streaming giant. The price of those put options jumped as much as 165% as shares plunged near that strike price, increasing the likelihood that the contracts will be in the money before they expire Friday. 

Shares tumbled 10% to close at $1,116.37 Wednesday after the company's quarterly revenue failed to surpass analysts' estimates for the first time in more than two years. A tax dispute with Brazil shaved Netflix's third quarter earnings. 

Earnings reached $5.87 a share in the third quarter, missing the average analyst estimate by more than 15% as an ongoing dispute with Brazilian tax authorities boosted the company's expenses, hurting operating margins. Revenue grew 17.2% to $11.51 billion, slightly below the average analyst estimate of $11.519 billion, according to Bloomberg consensus. 

"Management said the Brazilian issue—a 10% tax on some payments to foreign companies—would not have a material impact on future results, but unanswered questions remain," Morningstar analyst Matthew Dolgin wrote in a note to clients Wednesday. "We believe this expense could cost $200 million annually and hamper operating margins by about 35 basis points."

To JPMorgan analysts including Doug Anmuth, the Brazilian tax dispute that boosted the company's expenses by $619 million in the third quarter "creates noise, but it's not an issue." To them, the bigger focus was "the lack of revenue upside in the back half." 

"We don't expect Street numbers to move much coming out of the print, but they may come down slightly on less revenue upside and a bit more expenses," the JPMorgan analysts wrote in a note to clients Wednesday. They lowered their December 2026 price target on Netflix to $1,275, from $1,300.

Even after Wednesday's share slump, the stock is still up 46% over the past year. After that strong rally, the stock is trading at 43.8X its 2025 estimated earnings, compared with 19.2X for its closest rival $Disney (DIS.US)$.  

"We believe that after significant stock price appreciation & outperformance, the risk/reward in NFLX shares is becoming more balanced," JPMorgan analysts said. "Premium valuation, broader market outperformance, & a quieter catalyst path may weigh on shares."

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