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.
