Roku (ROKU) Option Traders Tuning in Ahead of Earnings

Rate this post
Roku (ROKU) Option Traders Tuning in Ahead of Earnings

Prior to the release of the company’s fiscal second quarter results, investors in Roku, Inc. (ROKU) have maintained share prices range-bound. The open interest for call options is increasing, giving the impression that option traders are poised for a good development. If ROKU reports a poor earnings surprise, the extraordinary option activity may lead to a sharp decline in price.

The open interest in call options for ROKU continues to increase, and option premiums are now at a typically high level. Trading volumes suggest that traders have been hedging against a negative earnings report by selling options and purchasing calls. The share price of ROKU can be unexpectedly pressured lower as a consequence of unwinding these trades.

It is difficult to accurately forecast a stock’s future course following results. If ROKU issues a bad report, the company’s share price might drop considerably and drop even farther below its 20-day moving average following the release, according to a comparison of the stock’s option activity and price movement. Options are set up for an upward movement, but unanticipated negative news might catch traders off guard and trigger a sharp decrease in share price.

Key Takeaways

  • Prior to the release of the earnings report, traders and investors restricted the price range of Roku’s shares.
  • Recent trading sessions saw the share price close below its 20-day moving average.
  • Pricing for calls and puts indicates a greater move to the upside.
  • The support and resistance levels based on volatility enable a more forceful upward movement.
  • Traders have the chance to benefit from an unexpected profits result thanks to this setup.

Chart watchers may learn a lot by comparing the specifics of the stock price and option activity. But it’s important to comprehend the environment in which this pricing behavior occurred. The price movement for the ROKU share price as of Tuesday, August 3, is shown in the chart below. This established the framework for the earnings report.

  Today's Mortgage Rates & Trends - August 12, 2022: Rates flat

Current Trends

The share price of ROKU stock has been decreasing from the extreme highs of the volatility range and falling below the 20-day moving average throughout the course of the last month, before repeating the same procedure. It is noteworthy that over this time period, the ROKU share price ranged from around $393 in mid-July to over $490, an all-time high, just one week before results. The center portion of the chart’s technical examinations is where the price ended up.

The studies’ 20-day Keltner Channel indications serve as its foundation. These are price levels that are multiples of the stock’s average true range (ATR). The price has decreased below the 20-day moving average in the week before earnings, as seen by this array. The price movement of ROKU shares suggests that market participants are cautious about the earnings announcement.

Tip

A common method for displaying historical volatility over time is the Average True Range (ATR). Two to four weeks of trade on a daily chart are often included in the 10 to 20 time periods that make up the standard average length of time utilized in its computation.

Watchers of the chart can see that traders and investors are expressing uncertainty heading into earnings in this situation when the price trend for ROKU has dipped to an average range. It’s interesting to note that the share price of ROKU reached an all-time high in the week before results, only to drop below the 20-day moving average a few days before the report. It is crucial for chart observers to ascertain whether or not the change reflects investors’ expectations for good results.

Information regarding option trading may provide chart observers more context for understanding investor expectations. Even if there are somewhat more puts than calls in the open interest, option traders recently prefer calls over puts by a little margin. This activity often implies that traders are gradually revising their predictions for the earnings announcement.

  Defaulting on Home Equity Loans and HELOCs

Tip

A 20-day simple moving average, an upper and lower line, and a series of semi-parallel lines are shown by the Keltner Channel indicator. This channel indicator provides for a fantastic visualization tool for charting historical volatility since the higher lines are produced by adding a multiple of ATR to the average and the lower lines are drawn by subtracting a multiple of ATR from the average price.

Trading Activity

Option traders have priced their contracts as a wager that between now and Aug. 6, the Friday following the release of the earnings report, the stock will close inside one of the two boxes shown in the chart. They are aware that ROKU shares have dropped to an average range and have priced their contracts accordingly. The price that call option sellers are providing is shown in the green-framed box. If prices rise, there is a 38% probability that ROKU shares will complete the week with a closing inside this range. When put options were priced, the red box indicated a 33% chance that prices would decline after the announcement.

It is important to remember that there were more than 150,000 call options in the open interest compared to around 155,000 puts. It is noteworthy to note, however, that the put/call ratio has been declining over the previous five days, showing that call option purchasers are gaining confidence. On Monday, over 55,000 options were exchanged compared to 31,000 puts. The roughly similar sizes of the call and put boxes, however, indicate that the increasing proportion of call options traded has only slightly raised expectations. It suggests a much more complacent view.

The 10-day Keltner Channel research with a four-times ATR setting produced the purple lines on the graph. With this metric, the price action is more likely to produce zones of strong support and resistance that are strongly connected. When the channel lines have recently made a considerable turn, these areas become visible.

  The Benefits of Mortgage Repayment

The graphic below includes annotations for the levels that the turns designate. What stands out about this chart is how closely the call and put prices are spread out, with lots of room to go either direction but somewhat more room to the upside. Even though recent call volumes have outweighed put levels, this indicates that option purchasers may not be fully confident in the company’s reporting strategy. Even if traders and investors might not anticipate it, a shocking announcement would cause prices to move sharply higher or down.

These levels of support and resistance demonstrate a wide range of price support and resistance. This makes it feasible that any news—surprisingly good or bad—will take investors by surprise and cause an out-of-the-ordinary huge move. Roku shares increased 11.6% the day after the prior earnings report, fell 4.9% the next day, and then progressively increased over the following several weeks. After this statement, investors could anticipate a similar shift in the price. Share prices might increase or decrease more than anticipated since there is lots of space in the volatility range.

Market Impact

Since ROKU isn’t exactly a bellwether company, indices aren’t going to be directly impacted by its earnings. Regardless of what the study says, it can have a big influence on the stocks of companies in the entertainment sector. Other industry companies like Netflix, Inc. (NFLX), Dish Network Corporation (DISH), or ViacomCBS Inc. might benefit from a favorable report (VIAC).Exchange-traded funds (ETFs) like Vanguard’s Total Stock Market ETF (VTI) and Invesco’s Dynamic Software ETF may also be impacted (PSJ).

You are looking for information, articles, knowledge about the topic Roku (ROKU) Option Traders Tuning in Ahead of Earnings on internet, you do not find the information you need! Here are the best content compiled and compiled by the achindutemple.org team, along with other related topics such as: Mortgage.

Similar Posts