Netflix shares dropped sharply today, approaching a key support level around $83.50. Even though the company reported strong quarterly results and offered positive future guidance, the stock has fallen nearly 35% since its high in November. This drop is occurring as solid fundamentals face challenges from market uncertainties and concerns about the Warner Bros. acquisition. In Q4 2025, Netflix announced a revenue of $12.05 billion, an 18% increase from last year. The net income was $2.4 billion, with earnings per share (EPS) of $0.56, slightly above what analysts expected. The operating margin improved to 25%, thanks to growth in ad revenue, which surged 2.5 times to over $1.5 billion for the year. For 2026, Netflix projects revenue between $50.7 and $51.7 billion, a year-on-year increase of 12–14%. They also expect a 31.5% operating margin, excluding $275 million in costs related to Warner Bros. While Netflix anticipates doubling ad revenue and expects $11 billion in free cash flow, growth is affected by reinvestments in content and the Warner Bros. acquisition. Shares are currently trading at $83.50, which is an important support level after a steady decline. Trading volume increased as investors defended the $83–$84 range. If this support is breached, shares could drop to $78–$80, but a bounce back above $90 might change the market’s mood. The sharp decline to the $83.50 support level indicates a situation filled with uncertainty. There’s a clear conflict between Netflix’s excellent performance in 2025 and market fears regarding the Warner Bros. deal. This high-stakes environment is ideal for options strategies. Implied volatility for Netflix options has risen to over 60%, significantly higher than the 90-day average of 40%. This spike makes options more expensive, reflecting market expectations of large price movements in the near future. Traders may want to use strategies like spreads to manage these costs. For those who think the market reaction is too extreme and that support will hold, a bullish strategy with February 2026 call spreads could be effective, such as buying the $85 call and selling the $92.50 call. This approach limits risk while allowing for profit if shares rebound towards the $90 resistance level. On the other hand, if the risks from the $40 billion acquisition funding seem too high, a drop below $83.50 is possible. The put-to-call ratio for weekly options has already reached 1.4, indicating rising demand for downside protection. A bearish put spread, such as buying a February $82.50 put and selling a $77.50 put, would benefit from a decline towards the support area near $78. Another option is to sell cash-secured puts with a strike price below current support, like the February $80 puts. This strategy lets you take advantage of high volatility premiums. If the stock stays above $80, you keep the premium; if it falls, you’ll buy shares at an attractive price for the long term. A historical example to consider is the early reaction to Disney’s acquisition of Fox in 2017. Initial fears about debt and challenges in integrating the companies pressured Disney’s stock, despite its strong core business. However, confidence eventually grew, leading to a significant rally as the market became more assured about the integration plan.

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