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Cord-Cutters may Unite Around this Streaming Platform

Cord-Cutters may Unite Around this Streaming Platform

Roku Inc (ROKU) has been consolidating for since mid-April after the news of its equity distribution agreement with Morgan Stanley (MS) and Citigroup (C). While this will increase the number of shares and will dilute existing shareholders, it is a way to raise capital and grow the offering.

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  • The idea of cancelling your TV service (cord cutting) and relying exclusively on a streaming service or services has been a difficult one, but it has been an established trend. That trend picked up with people losing their jobs and their sports. In 1Q, tradition cable and satellite providers lost 1.8 million subscribers. Over 300,000 of the losses came from non-payment. That data is just through the end of March.

    Roku is in a good position to benefit from the current climate and is sitting in an attractive position technically to move higher.

    Since its April 20 high, the price of ROKU has been trading between $111 and $136. The price currently finds itself at the support near $111 and has been trading there for nearly five days as volume continues to dwindle.

    This is a typical consolidation phase as the price will eventually break in a direction as either the buyers or sellers are exhausted. A rally back to $136 from this level provides a favorable risk-to-reward using a 1 ATR stop of $7.80 below the entry price.

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  • Options provide the time and flexibility of limited risk and not being stopped out on a small move lower. The 17 JUL 20 110/115 long call vertical can be bought for around $2.50. The max gain of $250 can be achieved if the price closes above $115 at expiration. Consider closing early for $4 or more.