The recent selling of tech stocks provided a wake-up call to complacent bulls. But there is a silver lining amid volatility’s return — buy-the-dip setups are multiplying. And Roku Inc (NASDAQ:ROKU) is a perfect example. Allow me to be your guide as we take a stroll through ROKU’s price chart.
Since its early November earnings announcement, ROKU stock has been all the rage, a new favorite among the momentum crowd.
Since opening at $15.78 on IPO day, the stock has rocketed as high as $51.80, a mouth-watering ascent of 228% in a little over two months. Spectators afraid to chase should be cheering the recent drubbing in the tech sector. It has returned ROKU shares to potential support, providing a low-risk entry in the process.
As with all stocks in their infancy, there isn’t yet a lot of price data we can use to analyze ROKU. It’s not even old enough for a 50-day moving average, let alone a 200-day.
And yet, we do have multiple pivots and support/resistance zones to guide us. The pivots are trending higher, so we officially have an uptrend. Previous support lies at $35 and an old resistance zone at $30 is also a viable floor.
But before we test either of those, sellers first have to take ROKU below the 20-day moving average, and I’m not sure they have the power to do so. Today’s doji candle (so far at least) suggests bulls are putting up a fight. Time will tell if they succeed, but whether we bounce here or at $35 or lower, dips should be viewed as buying opportunities in ROKU.
The sky-high volatility is generating some hefty premiums in ROKU options. And that presents some exciting opportunities for short premium strategies. If you’re willing to bet this dip gets bought sometime between here and $30, then sell the Jan $30 put for $1.40. The max reward is limited to the initial credit and will be captured if the puts sit out-of-the-money at expiration.
In timing the entry, I suggest waiting for a break of today’s high to confirm the stock is pivoting. If it falls lower in the coming days, you’ll be able to sell the put at a better price.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.