Netflix shares fell more than 9% late Thursday after first-quarter earnings came in below Wall Street expectations. GAAP EPS was $1.23, missing consensus by $0.11, and the stock dropped from $107.88 to briefly under $98.00.
Revenue totalled $12.25 billion, up 16% year on year. This beat the consensus estimate by $80 million.
Q2 Guidance And Margin Outlook
The company set second-quarter guidance below forecasts, with sales expected at $12.57 billion versus a $12.63 billion consensus. It also projected Q2 GAAP EPS of $0.78, compared with a prior consensus of $0.84.
Netflix said Q2 will have the highest year-on-year content amortisation growth rate in 2026, then slow to mid-to-high single-digit growth in the second half. It forecast a Q2 operating margin of 32.6%, down from 34.1% a year earlier.
For Q1, operating margin was 32.3%, up from 31.7% in the prior-year quarter. Full-year 2026 guidance stayed the same, with revenue of $50.7 billion to $51.7 billion, equal to 12% to 14% growth (11% to 13% currency-neutral), and a projected rough doubling of ads revenue.
Given the sharp 9% after-hours drop on April 16, 2026, we see an immediate opportunity driven by fear. The market is reacting harshly to the Q1 earnings miss and, more importantly, the lowered guidance for the second quarter. This creates a classic conflict between short-term sentiment and the company’s unchanged full-year outlook.
For those expecting continued downward pressure, buying put options with May or June expirations makes sense. This strategy directly profits if the stock continues to slide below the $98 mark in the coming weeks. The lowered Q2 operating margin forecast, down to 32.6% from 34.1% a year ago, provides a strong justification for this near-term bearishness.
Options Positioning After The Selloff
However, implied volatility has spiked, making options expensive. We’ve seen this pattern before; looking back from 2025, the stock’s dramatic swings in 2022 and 2024 after earnings reports show that these big moves often create rich premiums for option sellers. This suggests that selling cash-secured puts at a strike price like $90 or $95 could be a viable strategy for those who believe the sell-off is overdone.
The company’s reiterated full-year guidance is the key piece of information for a contrarian view. Management’s confidence in hitting its 12%-14% revenue growth target suggests the Q2 margin issue is a temporary blip related to content costs. Research indicates the broader market, with the VIX holding above 18, is already nervous, often causing investors to overreact to single-stock news.
We also note that ad revenue is projected to roughly double in 2026. This significant growth driver seems to be ignored by the market’s current focus on the Q2 margin compression. Based on recent analyst reports, the growth of the ad-supported tier is expected to contribute over $4 billion in revenue this year, a critical factor for long-term valuation.
A more nuanced approach could involve using spreads to manage risk and cost. A bull put spread, selling a higher-strike put and buying a lower-strike one, would allow us to collect premium with limited risk. Alternatively, a calendar spread, selling a near-term option against a longer-dated one, could capitalize on the expected volatility crush while positioning for a recovery into the stronger third quarter.
