NetFlix Option Chain vs Roku Option Chain

At its current price of $130, Roku stock can be perceived as the 2016 NFLX Stock.

If Buy and Hold for higher price is not your thing, maybe you ought to consider trading ROKU Options.

For that purpose, we are offering this comparison of Netflix (Ticker: NFLX) option chain vs Roku Option Chain.

Netflix Option Chain vs Roku Option Chain: Historical Overview

Netflix has become an international streaming giant with subscribers in 190 countries and growing.

Before it reached its current popularity, Netflix (Ticker: NFLX) stock used to trade for less than $1 in 2002.

The lion share of the stock growth took place between 2010 and 2015 when it surged from $15 to $100.

Not a bad return over six years.

NetFlix (NFLX) Stock Price from TradingView between 2009 and 2020 in NetFlix Option Chain vs Roku Option Chain Article

The chart above of NetFlix Stock until mid-2018 is simply parabolic.

That type of growth in three years when the stock went from $60 to over $400 is nothing shy of exceptional.

To give you an idea, a $10000 investment in NetFlix stock in early 2015 would have yielded over $50000 profit in mid-2018.

If that is impressive, how about the almost exact growth rate for its direct competitor Roku ?

Roku is relatively newcomer in the almost crowded streaming arena.

Its platform still focuses mainly on TV shows though the Los Gatos California (Netflix headquarters are on the same Street as Roku’s) based company allows its current 27 million subscribers to access live sports and Music.

From fourth-quarter 2017 to August 2019, Roku stock grew 6-fold.

It went from about $25 to 175 in literally two years.

The majority of the growth took place in 2019 with a $100 run in the first 8 months of 2019.

Netflix Option Chain vs Roku Option Chain: Stocktwits Sentiment

Given the recent growth of both stock prices, what is the dominant sentiment of their respective followers in stocktwits community ?

NFLX Stocktwits vs Roku Stocktwits

Roku Stocktwits has nearly 57000 Followers on stocktwits versus 207000 for NFLX Stocktwits.

Prior to the recent retreat of it price, Roku Stocktwits sentiment has been very Bullish.

What is not to like in a stock price that gains over $100 in just a few months ?

Many of the fans will often list fundamental reasons why Roku stock (Ticker: Roku) is poised to catapult even higher despite its overbought technical status.

The stock retreat from 170+ to $100 in September alone before rallying back to the same levels in November.

As of this writing, Roku stock is trading at $120 in this early February 2020.

It is going to get support again at 100 ? Where will it go from there ? A return to $170 or back on earth below $100 ?

Are These Two Cult Stocks ?

I do not know about you but there is no predicting the long term price action of any stock these days for me solely based on its fundamentals.

Once upon a time, on a piece of paper I drew projection price for NetFlix stock in early 2017 when it was struggling between $100 and $120 just as Roku is doing right now.

This projection actually materialized later that year and in 2018.

All of this to say that, it is very possible for Roku stock to follow the steps of its illustrious competitor.

However, I am not going to go on a limb here to make a case for that eventuality.

Instead, may I suggest we analyze the Netflix Option Chain vs. Roku Option Chain to see which one is more suitable for day traders and swing traders to take advantage of.

Here is a recent video depicting the best way to trade NFLX stock in a volatile market.

Before we do that, I want to present this little piece of research I just generated.

Correlated or Not Correlated

Given than Netflix and Roku are competing for the same pie of the streaming business, one could wonder whether the trade alike or completely opposite.

Meaning that a gain for Roku is a loss for Netflix and vice versa ?

Which in turn would equate to the fact that if NFLX stock is up then Roku stock must be down ?

To answer this question, I generated daily correlation study of their respective stock prices between 2017 and 2019.

The results are as follows:

2017: Correlation Coefficient = -0.40 meaning clear evidence of an obvious relationship between NFLX and Roku

2018: Correlation Coefficient = 0.40 No clear Evidence of a Relationship

2019: Correlation Coefficient = – 0.61 Some relationship may exist but not obvious

So far in 2020: Correlation Coefficient = -0.45 leading to the same inconclusive comment.

For reference, below is the chart of NFLX and Roku stocks. May you judge by yourself.

Comparison of NetFlix Stock price vs Roku Stock price between 2017 and February 2020 in NetFlix Option Chain vs Roku Option Chain discussion

One thing of value we can take away from the above research is that when there is a semblance of a relationship between these two stocks, their price trade in opposite direction.

That is what the negative sign in the correlation coefficient tells us.

It may just be a coincidence of some sort that Roku stock was breaking out while Netflix stock was retreating from its All time high.

Are there investors you are content with the money they made on Netflix stock and are now flowing that into Roku stock ?

That is one the hope of some die hard fans of Roku Stocktwits and some NFLX Stocktwits detractors as well.

Their main argument against Netflix price is the ever rising cost of content as the company tries to gain more and more international subs.

Which One Has the Better Option Chain

Our gauges for this comparison will focus on two main points.

The Implied Volatility, the Liquidity and the Options Spread.

Implied Volatility

Netflix 30-day Volatility until March 2020 stands at 35% and spike up for April Earnings season to 37%.

That is a good Implied Volatility. As a reminder, the higher the Implied Volatility, the higher the price of the Options.

On the other hand, Roku Thirty Day Implied Volatility even after mid February Earnings remains close to 70%.

That is almost double of the Netflix’s one.

Its 20% call delta for MAR20 price is $155 almost 30% from its current price of $120

As for Netflix, that same 20% call delta for MAR20 is only 10% away from its current price of $345.

What does this mean ?

In other words, Netflix has a 20% chance to move upward by March 20, 2020 by the underlying stock moving 10%.

To get the same chance for NetFlix, the stock will need to move 30%.

Granted, We said Roku has Earnings in mid-February which can serve as a huge catalyst but also as a huge Risk.

Besides, even outside of that event, the Implied Volatility on Roku will remain about the same.

Here is a view depicting Netflix March20 2020 Option chain as it stands today.NetFlix Option Chain for MArch 20 2020

How about the Liquidity

Both stocks have very liquid options with plenty of open Interest which is always bound to vary depend on how many new Option Flow Orders are to come in at any given time.
Netflix Option Chain Spread vs Roku Option Chain Spread.

I have to make sure that this is a fair comparison because Netflix is about three times the price of Roku.

Therefore, we can not expect the Spread to be comparable.

Netflix and Roku strike prices for March 20, 2020 are by $5 interval so no difference there.

In order to compare the Option Spread, we are going to normalize the current spread by multiplying Roku option spread by a factor of 3 to reflect the difference in their underlying stocks.

  • Roku In The Money Spread is 35 cents vs 50 cents for Netflix
  • Roku 20% Delta Call Spread is 15 cents versus 35 cents for Netflix

After normalization, Roku Spread are clearly much higher thus making Roku Option chain less attractive on two of our three gauging metrics.

Final Verdict

We answered the question on why Netflix Option Chain is better than Roku Option chain.

Though both remain two good stocks to trade Options on because of their inherent Volatility, NetFlix presents better Options metrics than Roku stock at this time.

If you would like to increase your knowledge and further your understanding of these concepts, may I suggest this similar article.

If you would like to see how we put this information in application to make money trading Options, click here.

Please leave us your thoughts, comments, experiences or questions about this content so that we can continue to tailor it to your needs.

Leave a Comment