Roku Stock Drops After Analyst Downgrade

Options volume is running at six times the intraday average

Deputy Editor
Nov 17, 2021 at 10:08 AM
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Streaming concern Roku Inc (NASDAQ:ROKU) is down 9.4% at $250.60 this morning, after MoffettNathanson downgraded the security to "sell" from "neutral," with a price-target cut to $220 from $330. The firm noted the increasingly obvious signs of Roku's slowing revenue growth, saying it's time to reconsider their long-term assumptions. Plus,  Truist Securities slashed its price target down to $360 from $390.

Coming into today, the majority of analysts were overwhelmingly bullish towards Roku stock, meaning these bear notes could be just the beginning of a major unwinding of optimism. Of the 20 in question, 17 recommended a "strong buy," while two said "hold," and one a "strong sell." 

A shift of sentiment in the options pits, which lean bullish, could also put more pressure on ROKU. According to the stock's Schaeffer's put/call open interest ratio (SOIR), which stands higher than just 8% of readings from the past year, short-term options traders have rarely been more call-biased.

Drilling down to today's options activity, 28,000 calls and 21,000 puts have already crossed the tape, which is six times what is typically seen at this point. The two most popular are the weekly 11/19 250- and 255-strike puts, with positions being opened at both.

Now may be an ideal time to weigh in on Roku stock's next move with options, as the equity sports attractively priced premiums at the moment. ROKU's Schaeffer's Volatility Index (SVI) of 46% stands higher than just 3% of readings from the last 12 months. This suggests the options market is pricing in low volatility expectations for the equity right now. What's more, the equity's score on the Schaeffer's Volatility Scorecard (SVS) is maxed out at 100. This means Roku stock has often realized higher volatility than the options pits have priced in, making it a perfect premium-buying candidate.

The security is now trading at its lowest level in nearly a year, down 22% year-to-date. Pressure at the 10-day moving average has forced ROKU lower since mid October, and the equity has also slipped below long-term support at its 320-day moving average. Roku stock may have been overdue for a short-term bounce, however, per its 14-day Relative Strength Index (RSI) of 29, which is sitting firmly in "oversold" territory. 


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