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Analyst Prefers Roku Stock to Netflix

Patrick Martin

When we checked in with Roku Inc (NASDAQ:ROKU) last week, the streaming stock was roaring to new heights after a blowout earnings report. Today, ROKU is up 7.5% to trade at $134.77, and earlier nabbed a fresh record high of $136.55 after Needham maintained the stock as its mid-cap pick for 2019. The analyst in coverage upped its price target to $150 from $120 -- the highest on Wall Street -- and stated its preference for Roku over streaming rival Netflix (NFLX). Needham waxed optimistic about Roku's free content, quarterly results, and value proposition to advertisers.

The bull note has sparked heightened activity in ROKU's options pits. More specifically, ROKU has seen almost 50,000 call options change hands today -- three times the average intraday amount and volume pacing for the 100th percentile of its annual range. Most active is the August 135 call, where new positions are being opened. This indicates options traders are betting on more upside from ROKU thru Friday, Aug. 16, when the options expire.

This call buying trend is nothing new, though. In the last 10 days, 63,747 long calls traded at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), compared to 40,785 puts.

Those wanting to bet on the streaming stock may want to consider buying short-term options, which are pricing in unusually low volatility expectations in the wake of the company's earnings report last week. This is based on ROKU's Schaeffer's Volatility Index (SVI) of 57%, which registers in the 13th percentile of its annual range.

In addition, the equity has had a tendency to make bigger moves than what options were pricing in over the past year. The stock's Schaeffer's Volatility Scorecard (SVS) sits at 96 (out of 100), which means buying premium has been an attractive strategy during the last 12 months.

Roku is cruising toward its fourth-straight win. The stock was trading at $30 to start 2019, and has relied on three earnings-induced bull gaps to more than triple in value. Even pullbacks this summer found support at the shares' 50-day moving average. 

Daily Stock Chart ROKU