After the close Roku inc (ROKU) will report only their second quarterly results since going public at $14 In September of 2017. The day following the print, shares of ROKU rallied a whopping 55% and have never looked back, now up 265% from their ipo price and only 13% from its all-time highs made in December:
The options market is implying about a $9, or nearly 20% move in either direction tomorrow. With the stock at $51, the Feb 23rd 51 straddle (the call premium + the put premium) is offered at $9, if you bought that and the thus the implied movement you would need a rally above $60 or a decline below $42 by Friday’s close to make money.
Despite the stock’s strong performance, sentiment remains mixed to say the least, with short interest about 35% of the float, and of the six Wall Street analysts who cover the stock, only two have Buy ratings, with 1 Hold and 3 Sells with an average 12 month price target of about $36, well below where the stock is trading.
If I were long the stock and holding into the print, I might consider a way to take advantage of what most certainly will be a vol crush after earnings. Selling a call near the prior all-time of $60 and in-line with implied move could make sense, For instance vs 100 shares of long stock at $51 you could sell the Feb 23rd 60 call at 1.35. If the stock is $60 or lower on Friday’s close you would take in the $1.35, or more than 2%. If the stock were $60 or higher your stock would be called away at $60, but effectively $61.35. And for overwrites, if the stock is through the short call strike you can always cover the call to keep the long stock position in place.
Additionally, for nervous longs or those looking to protect some profits, using that same call sale to finance some protection makes sense. For instance, the Feb23rd 45/35 put spread is 1.80, and vs a sale of the 60’s at 1.35 the hedge would cost just .45 and protect against any declines below 45 in the stock (less the .45 paid) The same thing holds true if the stock goes higher through 60 but the hedge could be taken off for a loss versus much higher gains in the stock. And the only thing lost if the stock is below 60 is the .45 paid.