One streaming company stock is roaring higher this year.
Roku shares have surged 230% in 2019, 11 times Netflix鈥檚 gains, to hit record highs in the past month.
Todd Gordon, founder of TradingAnalysis.com, is betting the stock will make a massive move as it reports earnings next week.
鈥淰ery, very explosive stock here. You can see going back to the beginning of 2019 just an amazing, amazing uptrend here in Roku,鈥 Gordon told CNBC鈥檚 鈥Trading Nation 鈥 on Thursday. 鈥淚鈥檇 like to play a continuation higher on this chart. 鈥 We wouldn鈥檛 expect to see technical resistance until we鈥檙e right around the $125 mark in terms of that upper channel.鈥
That trend channel stretches on the upper channel from a series of higher highs beginning in early February to its record high in mid-July. Gordon also sees a bull flag forming in the past two weeks, a descending channel of consolidation that could mark a breather before a stock continues to rise.
鈥淗eading into earnings, it鈥檚 quite interesting, we have very high implied volatility here in Roku,鈥 said Gordon. 鈥淚f you look at the expected move on the top side, it鈥檚 looking for a move all the way up to $120 if the stock where to surprise on the upside. Conversely, if we disappoint, you could be looking at something down to $89.58.鈥
A move to $120 following earnings would represent a 19% surge following its earnings report next Wednesday. It would mark a new record. A drop to $89.58 implies 11% downside.
Gordon is putting on a butterfly call spread to hedge any volatility risk tied to Roku鈥檚 post-earnings move. To do this, he is buying the 115 call with Aug. 9 expiration, selling two of the 120 calls, and buying a 125 call. This trade works if options expire at the strike price of the 120 calls.
