Roku is simply a device that gives users the chance to access content without the first-mover advantage and experts are of the view that it’s not to be worth a $5 billion valuation. Since the market has fallen in love with Roku’s metrics, its shares have increased by nearly 165% after the third-quarter result of the company was released on November 8, 2017. The details of the report show that there were 16.7 million users, which is an indication of a 48% growth in active accounts. Also, the company recorded an increase of 58% in streaming hours. Roku is faced with the challenge of fending off competition from big technology companies, which is almost impossible, however, the company has experienced revenue growth despite stiff competition.
Considering their result which was released on February 21, it is expected that the shares of Roku Inc. could rise over the short term. Based on the analysis of the technical trading patterns and the options market, it has been suggested that Roku shares could be ready for a surge of more than 15% which will push the stock back to $50. The stock has experienced plenty of volatility after it became public late September at $14 per share. After reaching a high in mid-December to about $59, which is a climb of more than 300% before plunging by about 34% to $38, Roku has managed to hold steady despite the recent market drawdown.
Between January 26 and February 12, the stock has gained 75 bps to the 7.5% decline of S&P 500. Options traders are actually betting on a rise in the shares of Roku after the expected reports of the fourth-quarter 2017 results.
According to Ycharts, analysts are expecting the company to report a loss of $0.11 per share and a revenue of about $182.54 million. According to the long straddle options strategy, which used the options set for expiration on April 20, the stock may either rise or fall by 29% from the $43 strike price. The trading range which is between $30.50 and $55.50 is quite massive. Many bets have been placed in anticipation of a rise in the price of the stock to more than $50. Also, the open interest in the calls for $50, $55, and $60 strike prices have more than 2,000 open contracts each. The stock needs to increase to over $53.5 in order for the $50 strike price options that are trading at about $3.50/contract to breakeven. Seeing such options with that type of open interest of almost 23% away from the current price of the stock ($43.40) is interesting. At 92%, the implied volatility reading is quite high and it’s about 5.5 times higher than S&P 500 reading which is 17% and this makes the options costly. Also, it’s possible for the options to be part of a cover call strategy where someone holding the stock sells the calls in order to collect the premium.
After finding support around $39, the stock’s chart also has a bullish set up indicating that it broke out of a multi-month downtrend. It could possibly rise toward the next resistance level which is $49. On the flip side, some traders are waiting for the release of the company’s results and what it aims to do in the future. According to Ycharts, lots of traders are betting shares to fall and almost 41% of Roku’s float is being shorted.
After going public in a $220 million offering that was priced at $14/share on September 28, 2017, Roku was able to raise about $117 million and $86.8 million sent to selling stockholders. The company is viewed by analysts on Wall Street as a pure play on the consumption of streaming media, however a closer look reveals that the company is an advertising company which is selling a media device that is becoming commoditized, while it faces strong opposition from prominent technology companies like Amazon.com, Alphabet Inc., and Apple Inc.
— The Option Specialist