Netflix’s shares fell over 6% in after-hours trading after the company announced lower-than-expected net income. This dip was mainly due to a one-time payment of over $600 million to settle a tax dispute in Brazil. While revenue matched analysts’ expectations at $11.51 billion for the last quarter, the tax issue significantly affected earnings. On a positive note, Netflix’s free cash flow reached $2.6 billion, exceeding expectations. For FY 2025, the free cash flow forecast was raised to $9 billion. This increase coincides with strong consumer interest in popular shows like *Happy Gilmore 2* and *K-pop Demon Hunters*, leading to a 17% revenue increase year-over-year. Looking ahead, Netflix plans to release major titles, including the finale of *Stranger Things*, a new Frankenstein movie, and a new satire in the *Knives Out* series. The CEO mentioned using free cash flow for share buybacks and possibly pursuing mergers and acquisitions. While these potential mergers could affect cash flow and share prices, the tax issue in Brazil is seen as a one-time occurrence. The recent drop in share price may be temporary, given the overall strong earnings report. The 6% drop, bringing Netflix down to around $610, shows classic overreaction. Implied volatility for options expiring in the next 30-45 days has spiked, creating an opportunity. This short-term panic does not reflect the company’s solid performance, aside from the tax issue. We might consider selling out-of-the-money put spreads, such as the November $590/$580 strikes, to take advantage of this increased premium. With the upgraded free cash flow forecast of $9 billion for 2025 and planned share buybacks, there is strong support for the stock. This strategy can be profitable if Netflix stays above our short strike price by the expiration date. Concerns about competition seem exaggerated, and recent data backs this up. Nielsen’s streaming report for September 2025 showed Netflix captured 8.1% of total U.S. television viewing time, maintaining its position despite competing platforms promoting live sports. This sustained engagement contributed to the impressive 17% revenue growth year-over-year. Netflix has shown resilience before. In April 2024, a similar situation caused a 9% dip due to guidance concerns, but the stock returned to normal within six weeks as focus shifted back to content strength and profitability. The current reaction to the Brazil tax issue feels reminiscent of that previous temporary dip. Moreover, the possibility of mergers and acquisitions, potentially involving Warner Brothers’ assets, adds another factor to consider. Although a large deal might affect cash flow, acquiring proven content libraries could be seen positively in the long run. This speculation may sustain some volatility, making premium-selling strategies even more appealing in the upcoming weeks.

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