Netflix Puts Worth Shorting Here for High One-Month Yields

Netflix Inc. (NFLX) stock has been moving higher after a post-earnings dip. Moreover, even if NFLX takes a breather here or trades in a range, it may be worth shorting out-of-the-money puts to set a lower buy-in price.

NFLX closed at $81.72 on Friday, Aug. 28, up 2.35%. In the last month, it's risen over 20% since bottoming out at $67.60 on July 20. However, NFLX is still where it was almost 3 months ago, when it closed at $81.52 on June 3.

But it could be worth much more, based on analysts' price targets. Moreover, if it's stuck in a range, it makes sense to short out-of-the-money puts every month.

I discussed these points in two articles over the past two months: " Netflix Tanks on Lower Margins and Flat Outlook - Time to Buy NFLX?" (July 19), and " Netflix Looks Attractive to Short-Put Players - a 2.0% One Month Income Yield " (Aug. 7).

I suggested shorting the $65 and $70 put strike prices for income gains of $1.28 and $1.44, respectively. That resulted in short-put yields of 1.97% and 2.06% for two and three weeks, respectively.

It could be time to repeat this play, even if NFLX's rise falters from here.

Yahoo! Finance's survey of 51 analysts is $93.66, Barchart's mean survey price target (PT) is $95.52, and AnaChart's is $108.38. The average of these is $99.19.

My midpoint prior price target, based on FCF analysis, was $81.45, although my upper price was $85.70 . Combining this with the analyst survey PTs leads to an average PT of $95.82 .

That's over 17% higher than Friday's close. So, there is still good upside potential.

But we all know that after a stock runup, profit-taking occurs. That may mean it's better to short out-of-the-money (OTM) puts to set a lower buy-in point.

For example, the Oct. 2 expiration option chain, 32 days away, shows that the $78.00 strike price put option has a midpoint premium of $1.40. That's close to the prior play.

It means that an investor who posts $7,800 in collateral can enter an order to "Sell to Open" 1 put and immediately earn $140. That represents a one-month yield of 1.8%: