Options Traders Brace for Inaugural Roku Earnings Report

The options market is pricing in a large post-earnings swing for Roku shares

Nov 7, 2017 at 4:13 PM
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Earnings season continues this week, as traders today digested negative reactions from travel and drug stocks alike. After the close Wednesday, Wall Street will hear from TV streaming platform provider Roku Inc (NASDAQ:ROKU) -- marking its first earnings report as a publicly traded company. Here's a closer look at what ROKU options traders are expecting from the entertainment stock ahead of the big event.

Options Market Prices In Big Earnings Swing For Roku Shares

On just its second day of trading back on Sept. 29, Roku stock touched a record high of $29.80. The shares have since fallen 36% to trade at their current level of $19.13. Although the security sits well above its September initial public offering (IPO) of $14, an post-earnings dip could send the stock closer to its Sept. 28 all-time low of $15.75.

For Thursday's post-earnings session, the options market is pricing in a rather big swing of 21%, per at-the-money implied volatility (ATM IV) data from Trade-Alert. Based on the stock's current price, a drop of this magnitude would send the security down to a record low of $15.11. On the chance that the equity rallies after earnings, ROKU shares could jump back up to the $23.15 neighborhood -- territory the security hasn't visited since mid-October.

Bullish Options Traders Remain Hopeful

In fact, options traders could be hoping for a post-earnings pop. Today, calls changed hands at double the expected daily pace, with speculators possibly purchasing new positions at the weekly 11/10 20-, 21-, and 22.50-strike calls.

Plus, the security's 10-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 1.53. This tells us that options players have bought to open more calls than puts during the past two weeks.

Regardless of how options traders are leaning, it's getting pricey to buy premium on short-term options. ROKU's 30-day ATM IV of 93.9% ranks at its highest level yet, indicating elevated volatility expectations are being priced into near-term contracts.


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