Trade Alert - (ROKU) November 9, 2018
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (ROKU) - BUY
BUY the Roku (ROKU) December 2018 $30-$35 in-the-money vertical BULL CALL spread at $4.35 up to $4.60
Opening Trade
11-9-2018
expiration date: December 21, 2018
Portfolio weighting: 10%
Number of Contracts = 23 contracts
In a pattern that has become familiar, this quarter Roku (ROKU) announced a great earnings report and then took a 28% hit in the stock.
Entry points like this are rare so I am diving back into Roku, which I only took profit on during Monday….at a much higher price, except with much lower strike prices and farther out in maturity.
I am therefor buying the Roku (ROKU) December 2018 $30-$35 in-the-money vertical BULL CALL spread at $4.35 or best
This is a bet that the Roku (ROKU) will not trade below $35 by the December 21 option expiration day in 35 trading days. That is a level 54.83% down from the all-time high forged at the beginning of October.
Don’t pay more than $4.60 for this position or you’ll be chasing.
Here are the highlights of the report that triggered such a vicious meltdown:
- Roku beat the top and bottom line for the 5th straight quarter since going public
- Active accounts up 43% YOY to 24 million in the past quarter
- Platform segment up 74% fueled by video ads up 100% YOY
- 18-34 years old – 10% of this demographic using Roku to watch TV
- Ad industry is a $70 billion per year business all migrating to digital and Roku is the industry leader in over-the-top (OTT) TV boxes with a 37% of market share.
- Disney, AT&T WarnerMedia and Apple streaming services set to launch in 2019 and Roku will be one of the biggest beneficiaries from this explosion of new streaming services by integrating ads into these services to viewers from the Roku platform
- Being independent of the FANGs is a rare plus for Roku who offers all streaming services a la carte on their platform in an environment where viewers are picking and choosing different streaming services by the month and the optionality boosts the value of the product.
In other words, it all should be “screaming buy” to me.
If you don’t do options buy the stock outright. This is a great entry point for the best set-top box streaming play in the entire market.
Here are the specific trades you need to execute this position:
Buy 23 December 2018 (ROKU) $30 calls at………….…$15.00
Sell short 23 December 2018 (ROKU) $35 calls at……….$10.65
Net Cost:………………………….………..………….….....$4.35
Potential Profit: $5.00 - $4.35 = $0.65
23 x 100 x 0.65 = $1,495 in 35 trading days.
To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on How to Execute Vertical Call and Put Debit Spreads by clicking here.
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Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this.
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The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you.
The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don't execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile close to expiration.
If you don't get done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
