Roku (ROKU) is a popular growth stock that has been under pressure, falling from a high of 490.76 to close at 314.46 on Friday. It was down about 5% Monday morning.
Due to the severe sell-off, Roku stock has been on the radar for many option traders. Today, we will look at a high-risk, high-reward method of trading Roku stock options this week.
Looking at the chart, the stock was stuck between 300 and 320 for the last few days. (It was slightly below 300 Monday morning, after a July breakout failed.)
If the stock breaks to the upside, we could buy long calls, and if it breaks below 300, we could look at long puts.
Roku Stock Weekly Options Can Be Riskiest
Using weekly options gives the most bang for your buck, but they are also the riskiest. They can decay in value very quickly if the expected move doesn’t occur.
Last Friday, the Oct. 8-expiring calls with a 320 strike prices were trading around $5.50, and the 300 puts were trading around $3.10.
The idea would be to buy the calls on a break of resistance and the puts on a break of support. Ideally, the stock would keep trending in the breakout direction, allowing the trade to achieve quick profits.
When buying calls or puts, the maximum risk is limited to the premium paid, and the maximum profit is theoretically unlimited.
A reasonable profit target would be 50%, and a stop loss of 50% also makes sense.
Roku Earnings In November
This type of trading is very risky and fast-moving, so risking no more than 1% of total account size is prudent. This strategy is also not recommended for beginners.
Earnings for Roku are set for early November, so there would be no earnings risk with these options.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
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