Buying NFLX puts: hedge math and breakevens

A long put is the right to sell 100 shares at $72 until August 28, 2026. Max loss is the $273 premium; max profit is $6,927, reached only if NFLX goes to zero.

Below $69.27 the position is in profit at expiry, gaining one-for-one with each dollar the stock falls. Above $72 it expires worthless — which is the good outcome if you own the shares.

Puts carry a structural headwind: skew. Downside strikes on NFLX trade at higher implied vol than equivalent upside strikes because everybody wants the same protection at the same time. You are buying the expensive wing, always.

As a hedge on 100 shares, this put caps the loss below $72 at the cost of 3.8% of position value — an annualized drag of 51.5% if you run it continuously. That is the honest price of permanent protection, and it is why most people don't.

The modal outcome for a bought put is expiring worthless. NFLX above $72 at August 28, 2026 costs the full $273, and stocks drift up more often than down.

If you are hedging, be clear about what you are insuring. One put covers 100 shares — $7,171 of NFLX. A hedge that covers a quarter of your position is a quarter of a hedge.

Implied vol works against a debit buyer in both directions: pay too much for it at entry and the position needs a bigger move; watch it collapse after an event and the position loses even when the direction was right.

A directional structure that does not contain the print is a bet on drift in a stock that does not drift. One that does contain the print is a bet on a number nobody outside the company has, priced by an options market that has been calibrating to these releases for a decade. Pick deliberately; there is no middle.

NFLX's Aug 28 strikes are $1 apart near the money (1.39% of spot). Coarse enough that the strike you want frequently does not exist, and the nearest rung is a different trade. 27k contracts of open interest on Aug 28 is workable around the money and thin in the wings — width costs more here than the ladder suggests. 32 strikes on that expiry — 50% of the board — carry prints that agree with their own implied volatility and hold up across the ladder, and those are the strikes priced here. Liquid around the money; the wings can be wide, and legging a four-sided structure here costs real money.

Skew is inverted: the 25-delta CALL implies 1.5% more vol than the put. That is the market pricing upside risk above downside risk — a squeeze, a takeover rumour, or a crowded short. Owning upside on an inverted skew means paying the expensive side of the surface, which is worth knowing before you buy the call. The term structure is flat inside 1.5% between the two captured expiries, so there is no calendar edge to harvest and no event visibly priced into one month over the other.

At 36% ATM implied vol, the Aug 28 options are pricing a one-standard-deviation move of $7.03 over 27 days — roughly −9.8% to +9.8%, or $64.68 to $78.74. A directional structure whose profit zone begins inside that band is expressing a view the market has already priced.

The mistake this name punishes hardest: Holding any short-vol structure through the print because the delta looked safe. The implied move on this name is routinely exceeded.