Hey Traders,
Understanding how volatility works is the key to trading options.
It is the best way to know where the wind is blowing for the underlying. Then you just point the sail in the right direction.
All of Option Pit’s trading services use volatility to some degree to help find the best trade.
ROKU is experiencing subscriber growth – but is not making more money. Note below that IV is at one-year lows.
One-year chart in ROKU with 30 day realized vol and 30, 60, 90 day IVs.
There is an opportunity here with the big jump in the stock price and low volatility.
Short Squeeze Surprise
ROKU subscriber growth caught traders by surprise and any short term shorts had to cover.
As I look at the option prices, ROKU is not in a continual hard-to-borrow squeeze, so there is not the continued buy support. The lack of longer term shorts usually means it is easier for the stock to go down.
Usually I would expect a retrace at some point and the low IV makes put calendars a nice looking trade. Sixty or 65 strikes should do the trick.
One-year lows in IV with a market that is blowing up is a good time to own option volatility.
That is something we can look at in OP Mentoring next week.
To Your Trading Success,
