When it comes to outright dominance of a sector, it’s difficult to ignore content streaming juggernaut Netflix (NFLX). Fundamentally, the brand has practically ingrained itself into the collective consciousness. Furthermore, stakeholders appreciate the continued performance of NFLX stock, which is currently up almost 35% year-to-date at the time of writing. Still, its recent volatility suggests that Netflix could have an Achilles heel.
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Recently, reports surfaced that sector rival Paramount Skydance (PSKY) is planning to buy out Warner Bros. Discovery (WBD). As TipRanks reporter Joel Baglole mentioned, no deal has been officially announced. Nevertheless, the combination of the two enterprises would likely pose a significant headwind to Netflix. Paramount owns its namesake streaming service while Warner Bros owns HBO Max.
In addition, the two entities would own the CBS television network, along with a vast portfolio of specialty channels. That’s going to be problematic for Netflix in the live sports arena. Sure, the cord-cutting phenomenon shows few signs of decline. However, the one place where traditional TV dominates is sports broadcasting.
Soon, if the reports are correct, a merger between two content giants could make inroads in both the streaming and sports broadcasting arenas, causing headaches for Netflix. Still, the subsequent red ink in NFLX stock — which lost almost 5% last week — could represent an opportunity for contrarian options traders.
Establishing a Frame of Reference for Netflix
Primarily, options trading is enticing for speculators because of the underlying leverage. In particular, a multi-leg strategy called the vertical spread allows traders to enjoy a potentially outsized return for a relatively small movement in the target security. The tradeoff with vertical spreads is that they represent capped-risk, capped-reward transactions.
If you’re only anticipating a move of a few percentage points, the vertical spread can be a tempting compromise. However, the primary concern with options is that they eventually expire. As such, a trading idea must be multi-dimensionally precise; otherwise, you risk losing the entire principle that you put into the trade.
To narrow down which specific vertical spread to buy, traders tend to employ a prescriptive methodology for predicting forward price movements. Generally, this process involves calculating the estimated high-low range of a security using implied volatility. From there, other methodologies — such as technical analysis — may help elucidate a course of action.
Personally, I prefer the less commonly used descriptive methodology. Rather than estimate where a stock may head next using complex stochastic calculus and other formulations, I first identify a falsifiable quantitative signal. Then, using past analogs, I analyze how the market tends to respond to said signal.
Since we’re dealing with an unknown future, there’s no single correct way to forecast future price action. However, it’s my opinion that the descriptive pathway-dependent approach aligns with the security’s actual price geometry.
Playing NFLX’s Quant Signal
Over the past 10 weeks, NFLX stock experienced four up weeks and six down weeks, with an overall downward trend. For classification, this sequence can be labeled as 4-6-D. Given that the balance of distributive sessions outweighs accumulative, you might expect this signal to carry bearish implications. However, in the first six weeks of the sequence flashing, NFLX’s expected price drift is decidedly positive.
Subsequently, there’s a case to be made (using data from January 2019 to July 2025) that bullish traders should buy the current dip in NFLX stock. However, we also want to ensure that the 4-6-D sequence actually has predictive power, rather than being a product of coincidence. To accomplish this task, I ran two out-of-sample tests, one test covering the 2000s decade and the other covering the 2010s decade:
The purpose of out-of-sample tests is to analyze the core thesis in independent datasets. This way, we can better understand whether the implications of the thesis is based on exogenous factors (or outright coincidence) or if the claim carries predictive power.
In both tests, NFLX stock has demonstrated a general upward drift following the flashing of the 4-6-D sequence. To be sure, the sample test for the 2000s decade reveals considerable choppiness. Nevertheless, the positive drift between the fifth and ninth week is evident. All told, the sequence appears to have predictive value, warranting a bullish wager.
Betting on an Eventual Recovery
Scouring the available vertical spreads for optimistic speculators, the one trade that arguably makes the most sense is the 1230/1240 bull call spread expiring October 17th. This transaction involves buying the $1,230 call and simultaneously selling the $1,240 call, for a net debit paid of $520 (the maximum possible loss).
Should NFLX stock rise through the second-leg strike price ($1,240) at expiration, the maximum profit currently stands at $480, a payout of over 92%. Breakeven for this trade sits at $1,235.20.
Primarily, this wager resonates with me because the expected drift of NFLX stock following the 4-6-D sequence should bring the security closer to $1,260, assuming a positive outcome. However, anything can happen in the market, so setting the second-leg strike lower provides a probabilistic margin of safety.
Is Netflix a Good Stock to Buy Right Now?
Turning to Wall Street, NFLX stock carries a Moderate Buy consensus rating based on 25 Buys, 11 Holds, and one Sell rating. The average NFLX stock price target is $1,393.77, implying almost 16% upside potential over the coming year.
Netflix’s Red Ink Presents a Possible Discount for Traders
On a fundamental note, rising competition for Netflix presents a worrying case for possible downside. However, distribution-heavy market sequences tend to resolve positively — this is true for the current sentiment regime as well as past regimes. Given this tendency, speculators may consider bidding up NFLX stock to take advantage of this discount.