Options Trading: Streaming Profits with Roku

Posted On January 9, 2018 1:00 pm

Roku (ROKU), the streaming device and services company, began as one of the hottest tech stocks of 2017; after an October IPO, it posted better than expected earnings in November, sparking a 100% rally over the next month to a December high of $58.50 per share. It has since come under pressure with various downgrades and valuation concerns and shares have tumbled to a low of $42.50. This represents an opportunity for lucrative options trading.

ROKU has shown incredible growth in terms of both users and potential revenue streams.

  • The company ended 2017 with over 19 million subscribers, a 47% increase from the prior year.
  • The company recently announced expanded licensing agreements with manufacturers and is expected to be installed in one of every three new smart TVs.
  • It is launching a new suite of products including voice control and the ability to integrate and sound systems making it the ‘brains’ of the home entertainment.
  • There is huge short interest of 43% of the float which creates the potential for squeeze.

Yesterday the chart had a bullish reversal near the $42 support level.  I expect this stock to make a run back above $51.

I want to use a vertical call spread to establish a bullish position. Here’s the specific options trading:

  • -Buy to open 4 ROKU contracts January (1/26) 45 Calls
  • -Sell to open 4 ROKU contracts January (1/26) 50 calls

For a Net Debit of $1.80.

My expectation is for shares to climb above $50 in the next two weeks, which would make the spread worth $5 for a 177% gain.  Now that would be entertaining.

 Related: Can You Replace Stocks in Your Portfolio?

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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