Roku Earnings Reaction Catches Options Traders Off-Guard

Roku's weekly 11/8 185-strike call has been popular in recent weeks

Nov 7, 2019 at 9:13 AM
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Roku Inc (NASDAQ:ROKU) said its third-quarter loss arrived at 22 cents per share -- slimmer than the 28 cents per-share loss analysts were expecting. The company's quarterly revenue of $260.9 million also exceeded the consensus estimate, though Roku said operating expenses for the three-month period surged 60% to $260.9 million. This last number is what some are citing as the catalyst for a pre-market ROKU stock sell-off, with the shares down 14.7% in electronic trading.

Heading into today's trading, the streaming stock had been sailing up the charts since an early October bounce off its 120-day moving average. The shares topped out at a six-week high of $151.48 on Oct. 30, before easing back to last night's close at $141.05. Should today's pre-market price action hold, Roku stock will open the session near the $120 per-share mark.

Analysts have been quick to chime in following Roku's earnings report. While Susquehanna and RBC raised their ROKU price targets to $150 and $160, respectively, Guggenheim lowered its target price by $20 to $150.

Elsewhere, Loop Capital reiterated its "sell" rating and $80 price target on the equity, citing concerns over "substantial competition" and tariffs. Pivotal Research also maintained its "sell" rating and $60 price target, saying the company's fourth-quarter guidance was "surprisingly mixed," even with the upcoming launch of Disney+.

Today's expected spiral could catch some options bulls off guard. Roku's weekly 11/8 185-strike call saw a notable rise in open interest over the last two weeks, and data from Trade-Alert points to buy-to-open activity here. The good news for options buyers is the most they stand to lose is the initial premium paid.

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