Analyst: This Netflix Rival is Set for a Challenge

Near-term open interest looks unusually put-heavy, too

by Emma Duncan

Published on Dec 2, 2019 at 9:55 AM
Updated on Dec 2, 2019 at 1:17 PM

Streaming platform Roku Inc (NASDAQ:ROKU) is eyeing its worst day since early November, down 10% at $144.29 this morning, after Morgan Stanley downgraded the stock to "underweight" from "equal weight." The analyst also hiked its price target from $100 to $110, which represents a 31% discount to Friday's close. Morgan Stanley said it will become challenging for Roku to keep its valuation levels stable, even though its values have previously moved above that of sector peers. Coming into today, 10 of 15 covering firms were sporting a "buy" or better rating.

ROKU has been trending mostly higher in 2019, soaring an enormous 423% so far. The 120-day moving average captured multiple pullbacks after the equity reached its Sept.9 record high of $176.55, and providing the launching point for its most recent rally coming into today.

Short interest on Roku stock has jumped 35% during the most recent reporting period, and now accounts for more than 14% of the stock's available float. At the equity's average pace of trading, it would take shorts less than a day to buy back their bearish bets.

Despite its long-term outperformance, near-term open interest looks unusually put-heavy on Roku stock. This is according to its Schaeffer's put/call open interest ratio (SOIR) of 1.13, which ranks in the 81st percentile of its annual range. 

Lastly, ROKU has certainly been an attractive target for premium buyers over the past year. The equity's Schaeffer's Volatility Scorecard (SVS) reading arrives at 99 (out of a possible 100), meaning the streaming stock has tended to make bigger moves in the last 12 months, relative to what the options market had priced in.

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