Roku (NASDAQ:ROKU) already had a solid price chart heading into its quarterly report. But now it has a rousing earnings release to justify the optimism. This is a killer combo that should continue to deliver bullish opportunities for weeks to come. Today, we’ll identify how to score some cash flow off of ROKU stock’s continued dominance.
Skeptics citing the rapid rise in price as a cause for concern have a fair point, at least in the short-term. The post-earnings excitement delivered a mouthwatering 28% gain in two days. That’s certainly enough to merit some backing-and-filling to work through overbought pressures. Remember, sideways churn allows moving averages like the 20-day and 50-day to play catch-up, bringing support in their wake.
A second factor providing a potential reason for some digestion is the previous highs from Dec. 2017. The $58 zone spelled the peak for ROKU stock back then, and this is the first time it has been tested since. That suggests we may see some overhead supply that needs to be adequately absorbed before ROKU can continue its climb.
Spectators waiting for a pullback after the post-earnings pole-vault received their wish with yesterday’s 4.6% drop. This morning’s rousing rebound shows dip buyers certainly weren’t waiting for much weakness before diving in.
ROKU Stock Trade
Since ROKU could see some churn before continuing its climb, I like the idea of selling puts. It provides a wide margin of error via its large profit range. If the stock doesn’t completely crater back to its pre-earnings level, this trade idea will pay out.
Sell the Sep $46 put for 50 cents. The initial margin requirement should be less than $500, which means the potential return is over 10% for the month. If ROKU stock sits above $46 at expiration, you will capture the max gain of $50. If the put moves in-the-money, you will be obligated to buy shares at an effective purchase price of $45.50.
Of course, if you wish to sidestep assignment, then simply buy back the put before expiration.
As of this writing, Tyler Craig held bullish options positions in ROKU. Want more education on how to trade? Check out his trading blog, Tales of a Technician.