Special: The #1 stock in America

  • Facebook
  • Twitter
Top

New Businesses Create New Problems

New Businesses Create New Problems

new businesses

  • Special: The #1 stock in America
  • Investors and consumers know that new businesses have improved the quality of life. Facebook, for example, has made it easier to connect with friends and family. Other social media services do the same and some make it easy to connect with other people with similar interests.

    To profit, these businesses sell ads and advertisers rightfully question what their return in investing in these ads might be. This is true not just for social media but for other new services as well, including streaming video.

    That makes a recent announcement from Roku, Inc. (Nasdaq: ROKU) potentially very important to traders.

    Roku Works to Help Advertisers

    Roku announced a Measurement Partner Program to help brands and publishers quantify the impact of OTT advertising campaigns running on the Roku® platform across a wide variety of marketing and sales outcomes.

    Eleven partners including Acxiom, comScore, Experian, Factual, IHS Markit, Kantar, Nielsen, Nielsen Catalina Solutions, Oracle Data Cloud, Placed and ResearchNow SSI are now part of the program. Each of the companies measure a specific part of the marketing funnel including audience demographics, brand awareness, store visits, website visits and sales increases. The tools are included within the Roku Ad Framework, which is built on an open platform that leverages Roku’s unique first party data.

    Advertisers continue to shift dollars from linear TV to OTT. By offering a broad set of measurement solutions, Roku and its measurement partners are helping brands achieve more campaign success and quantify their return on investment in OTT.

    Roku helps marketers track results on both OTT and linear TV across a variety of points during a campaign. Through the Measurement Partner Program, Jack in the Box worked with Placed to determine its campaign on the Roku platform drove more than 164,000 store visits from December 2017 through February 2018. 43 percent of the campaign reach came from potential new customers.

  • Special: How the *[email protected]$ Didthe CEO Do It?
  • “As OTT becomes a larger share of their annual ad spend, brands are actively seeking trusted third-party measurement,” said Dan Robbins, director of ad and programming research, Roku. “Roku is committed to providing an open ad platform that ensures marketers have a wide variety of tools and standards to benchmark against.”

    “Our clients are increasingly looking to us to demonstrate specific ways their campaign resonated with their target audience and drove better business results,” said Mike Law, executive vice president, managing director, Video Investment forDentsu Aegis Network. “Having access to Roku’s various measurement capabilities will help us continue to improve our OTT strategy, planning, and investment.”

    With the Measurement Partner Program, Roku is further expanding its measurement capabilities across its platform. Roku was the first OTT platform to integrate Nielsen Digital Ad Ratings (DAR) and offer audience guarantees based on age and gender. Earlier this year, Roku also announced Ad Insights, a new measurement suite that leverages Roku’s first party data to measure campaign reach and effectiveness across linear TV and OTT.

    This News Could Boost the Stock

    ROKU has been a market leader for some time.

    ROKU weekly chart

    But, the stock has sold off with the broad market.

    ROKU daily chart

    Both these charts offer arguments for the bulls. A pullback after an extended up trend as seen in the weekly chart is natural. The weakness on the daily chart is extreme and a signal that a bounce is due after the stock became oversold.

    A Trading Strategy to Benefit from Weakness

    A price decline often results in higher than average options premiums. That means option buyers will be forced to pay higher than average prices for trades, But, sellers could benefit from the higher premiums.

    In this case, with a bearish outlook for the short term, a call option should be sold. The call should decline in value if the stock declines and sellers of calls benefit from this decline.

    Selling options can involve a great deal of risk. A spread options strategy can be used to limit the potential risk of the trade.

    One strategy that traders can consider is the bear call spread. This is a trade that uses two calls with the same expiration date but different exercise prices.

    Traders buy one call and sell another call. The exercise price of the call you sell will be below the exercise price of the long call. The call is sold to limit the risk of the trade. So, this strategy will always generate a credit when it is opened and will always have limited risk.

    The risk profile of this trading strategy is summarized in the diagram below which shows the limited risk and reward.

    bear call spread

    Source: The Options Industry Council

    While risks and rewards are limited, this strategy will allow traders to generate potential gains in a stock they might otherwise find too risky to trade. Many individuals ignore bearish strategies because of the risks.

    You’ll know the maximum potential gain with this strategy as soon as it’s opened. It is equal to the amount of premium received when the trade is opened. The maximum loss is equal to the difference between the exercise price of the options contracts less the premium received and is also known.

    A Bear Call Spread in ROKU

    For ROKU, we could sell an October 19 $56.50 call for about $3.05 and buy an October 19 $59 call for about $1.96. This trade generates a credit of $1.09, which is the difference in the amount of premium for the call that is sold and the call.

    Remember that each contract covers 100 shares, opening this position results in immediate income of $109. The credit received when the trade is opened, $109 in this case, is also the maximum potential profit on the trade.

    The maximum risk on the trade is about $141. The risk can be found by subtracting the difference in the strike prices ($250 or $2.50 times 100 since each contract covers 100 shares) and then subtracting the premium received ($109).

    This trade offers a potential return of about 77% of the amount risked for a holding period that is about five weeks. This is a significant return on the amount of money at risk. This trade delivers the maximum gain if ROKU is below $56.50 when the options expire, a likely event given the stock’s trend.

    Call spreads can be used to generate high returns on small amounts of capital several times a year, offering larger percentage gains for small investors willing to accept the risks of this strategy. Those risks, in dollar terms, are relatively small, about $109 for this trade in ROKU.

    These are the type of strategies that are explained and used in our TradingTips.com’s Options Insider service. To learn more about how options can be used to meet your income and wealth building goals, click here for details on Options Insider.

     

     

    Share