ROKU stock had pulled back to the 40-day moving average
Subscribers to Schaeffer's monthly Options Advisor newsletter just doubled their money with the Roku Inc (NASDAQ:ROKU) July 90 call option recommendation. Below, we'll explain how this options trade hit its expected target, leaving speculators with a big win.
When we initially recommended the call to subscribers on Friday, June 28, we noted the shares of of ROKU had been treating bulls well during the past year, the stock rallying to record highs in June, extending its upside from a strong May earnings performance. Since then, the equity had pulled back to its 40-day moving average, near the 200% year-to-date return level. This potential technical support, coupled with an overly bearish sentiment backdrop, suggested that the streaming technology concern could keep going higher.
Specifically, almost half of the covering analysts still had a “hold” or worse ratings in place, suggesting Wall Street would potentially deliver bullish brokerage notes in the near term. Also, short sellers had been covering, with short interest down 17.5% in the last two periods – though 8.6% of the float was still dedicated to short interest, meaning more covering looked possible. This would be yet another tailwind for ROKU stock, especially since it was likely these traders were holding losing positions. Traders were told to note, too, that the July options series had a much lower implied volatility than the longer-term August series, which will capture the company’s next earnings release.
From the time of our recommendation, the streaming giant quickly bounced from its late-June pullback. Supporting the shares' surge was the aforementioned 40-day trendline, guiding ROKU to an intraday peak of $105.89, Wednesday, June 10. This allowed subscribers to lock in a 100% profit in less than two weeks.
