Roku (ROKU) Option Traders Tuning in Ahead of Earnings

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Roku (ROKU) Option Traders Tuning in Ahead of Earnings

Roku, Inc. (ROKU) investors have maintained the company’s share price range confined ahead of the company’s fiscal second quarter results release. At first look, it seems like option traders are poised for a bullish move, as the quantity of call options in open interest is increasing. If ROKU reports a negative earnings surprise, the extraordinary option activity might cause a severe downward trend in the price action.

A increasing number of call options remain available for ROKU, and option premiums are now at an unusually high level. Trading volumes suggest that traders have been buying calls and selling puts ahead of a positive earnings release. Unwinding these bets may result in unanticipated negative pressure on ROKU’s share price.

It is difficult to anticipate the path of a stock following results. A comparison of the stock’s option activity and price movement, on the other hand, reveals that if ROKU provides a bad report, the company’s share price might fall dramatically, falling below its 20-day moving average following the announcement. This might happen because options are priced anticipating an upward increase, but unexpected bad news could take traders off guard and trigger a rapid drop in share price.

Key Takeaways

  • Roku’s share price range has been constrained by traders and investors ahead of the results presentation.
  • The stock price just fell below its 20-day moving average.
  • The price of calls and puts predicts a greater move to the upside.
  • The volatility-based support and resistance levels enable a bigger upward rise.
  • This setup provides traders with the possibility to benefit from an unexpected earnings result.

A comparison of the intricacies of stock price and option activity may provide chart viewers with useful information. However, it is critical to understand the environment in which this pricing behavior occurred. The chart below depicts the price activity for the ROKU share price on Tuesday, August 3. This resulted in the setting for the earnings report.

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Current Trends

Over the last month, the share price of ROKU stock has fallen from the extreme highs of the volatility range and fallen below the 20-day moving average, before repeating this pattern. During this time frame, the lowest ROKU share price was about $393 in mid-July, while the highest share price was over $490, an all-time high, just one week before results. The price settled in the center of the range shown by the technical studies on this chart.

The indicators used in the research are 20-day Keltner Channel indicators. These are price levels that are multiples of the stock’s Average True Range (ATR). This array emphasizes how the price fell below the 20-day moving average in the week before earnings. This price movement in ROKU shares suggests that investors are concerned about the earnings announcement.


The Average True Range (ATR) has become a widely used technique for illustrating historical volatility over time. The average amount of time employed in its computation is 10 to 20 time periods, which comprises two to four weeks of everyday trading.

In this environment, where the price trend for ROKU has dropped to an ordinary range, chartists may see that traders and investors are expressing concern about earnings. It’s worth noting that ROKU’s share price reached an all-time high in the week before results before dipping below the 20-day moving average a few days before the release. As a result, chartists must decide if the change reflects investors’ expectations for positive profits or not.

Option trading information might assist chart viewers establish an opinion about investor expectations by providing more context. Recently, option traders have favored calls over puts by a narrow margin, despite the fact that puts outnumber calls in open interest. Normally, this volume suggests that traders’ expectations for the results announcement are gradually shifting.

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The Keltner Channel indicator shows a series of semi-parallel lines based on a 20-day simple moving average, as well as an upper and lower line. Because the higher lines are produced by adding a multiple of ATR to the average price and the lower lines are drawn by subtracting a multiple of ATR from the average price, this channel indicator is an ideal visualization tool for displaying historical volatility.

Trading Activity

Option traders have priced their options as a wager that the stock would close inside one of the two boxes illustrated in the chart between now and Aug. 6, the Friday after the earnings report is revealed. The price offered by call option sellers is shown by the green-framed box. If prices rise, there is a 38% probability that ROKU shares will finish inside this range at the end of the week. The red box reflected the cost for put options with a 33% chance of going lower after the announcement.

It is worth noting that the open interest included around 150,000 call options vs about 155,000 puts. It is worth noting, however, that almost 55,000 calls were traded on Monday, compared to 31,000 puts, and the put/call ratio has been declining over the last five days, showing that call option purchasers are gaining confidence. However, given the call and put boxes are almost the same size, we may conclude that the increasing proportion of call options traded has only moderately raised expectations. A significantly more relaxed attitude is conveyed.

A 10-day Keltner Channel analysis set at four times the ATR yielded the purple lines on the chart. This metric creates closely connected price action zones of strong support and resistance. These areas appear when the channel lines have made a noteworthy turn during the last three months.

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The levels marked by the turns are noted in the chart below. What stands out in this chart is how close the call and put prices are, with lots of opportunity to go either way, but somewhat more room to the upside. This shows that, despite recent call volume outweighing put volume, option purchasers are unsure about how the business will report. Although investors and option traders may not anticipate it, a surprise report might cause prices to surge or fall drastically.

These support and resistance levels demonstrate a wide variety of price support and resistance. As a consequence, any news, whether unexpectedly good or negative, may take investors off guard and result in an abnormally significant shift. Roku shares jumped 11.6% the day following the prior earnings report, then dipping 4.9% the next day and steadily climbing over the next few weeks. Following this news, investors may anticipate a similar price movement. With so much opportunity for movement in the volatility range, share prices may increase or fall more than predicted.

Market Impact

ROKU isn’t a bellwether company, therefore its earnings reports are unlikely to have an immediate influence on indices. Whatever the study says, it has the potential to have a substantial effect on equities in the entertainment business. A strong report might boost the fortunes of other companies in the business, including Netflix, Inc. (NFLX), Dish Network Corporation (DISH), and ViacomCBS Inc. (VIAC).It may also have an impact on exchange traded funds (ETFs) such as Vanguard’s Total Stock Market ETF (VTI) and Invesco’s Dynamic Software ETF (PSJ).

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