Analyst: Time to Sell Roku Stock

Roku options traders bet on a big October rally

by Karee Venema

Published on Sep 20, 2019 at 9:59 AM
Updated on Jun 24, 2020 at 10:16 AM

Pivotal Research smacked Roku Inc (NASDAQ:ROKU) stock with a "sell" rating this morning, and set its price target on the stock at $60 -- a 55% discount to last night's close at $133.76. The brokerage firm said ROKU stock looked "overvalued despite the recent pullback," and said increased competition in the streaming space "will likely drive the cost of [over-the-top] OTT devices to zero."

In reaction, ROKU stock is down 5.1% to trade at $126.94, slicing through its 50-day moving average -- which served as a springboard for the shares back in May, and helped contain an early August pullback. It's already been a rough week for Roku, though, with the shares plunging 13.7% on Wednesday on reports of Comcast's (CMCSA) new streaming box. However, the equity has still more than quadrupled in 2019.

Options traders, meanwhile, have been targeting a monster move higher for the streaming stock. Specifically, the October 235 call is home to peak open interest in the soon-to-be front-month series, and data from the major options exchanges confirms notable buy-to-open activity here as recently as Sept. 10, when ROKU shares were trading near $144.

The highest ROKU stock has ever traded was $176.55, hit on Sept. 9, and from its current perch, the equity would need to rally nearly 76% for these calls to be in the money. Regardless of where Roku settles at the close on Friday, Oct. 18, when monthly October options expire, the most the call buyers stand to lose is the initial premium paid.


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