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

Netflix stock currently trades at 18.9 times forward earnings, a valuation level that places it near its 2022 bear market trough. While some investors remain cautious, market observers argue the underlying business is stronger than ever. The company has shifted focus toward revenue, margins, and free cash flow rather than simple subscriber counts. This pivot changes the long-term outlook for the firm.

Management is prioritizing share buybacks instead of overpaying for legacy assets. Generative artificial intelligence is already helping reduce expenses related to production, dubbing, and content localization. With 325 million members, the company provides a massive reach for advertisers on connected television. Projections show potential for 10 billion dollars in annual advertising revenue by 2030.

Trader Mike Khouw suggests the current valuation gap presents an opportunity for those using options. He proposes a covered strangle strategy for the August expiration cycle. This approach targets a specific price range while hedging against significant downside risk. By selling volatility, investors capture yield from a company with improved fundamentals. The trade serves as an alternative to buying shares outright in a volatile market.