Just was assigned ROKU -- what calls to sell?

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There is an earlier update from Sunday, March 4th, that can be found here:

https://greekgodtrading.blogspot.com/2018/03/just-was-assigned-mro-now-what.html

and

https://greekgodtrading.blogspot.com/2018/03/march-3rd-csp-and-cc-weekend-update.html 

The first link provides an analysis of MRO and the last link provides the weekend overview that I normally do.

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ROKU

Here's the history that got me to where I am today:

• ROKU 180302P40 was sold on 2/23 and I collected $75 at $1 commission.  ROKU closed at $37.60 on 3/2, below my strike, so 100 shares were put to me.  The duration was 8 days, inclusive of start/ending dates.  ROO was $74/4000 = 1.85% and AROO was 1.85% * 365 / 8 = 84%.  My new basis for the stock is $40.00 - $0.74 = $39.26, inclusive of commissions.

Step 2:  Has my position changed on whether I should own ROKU?

• ER:  ROKU does not report earnings until 5/23, after the close.  This is far in the future, so no worries.
• Dividends:  ROKU does not pay a dividend.
• Earnings:  ROKU is issuing guidance that earnings are in trouble but revenues should be up.  See here.  There is plenty of time to play with this stock since ER is May, but I would not want to hold it across ER or have a long contract until May.
• Revenues:  ROKU looks good in terms of revenues.
• Price:  As I write this, the close on Friday 3/2 at $37.57 and is -19% below the 50-day MA.  

Here is the price chart for ROKU:

Click on the image to enlarge.

My standard review is the same:

1. RSI is in the lower range, suggesting that a move up is possible.  We do not know when -- we simply know that it's hanging out here for a bit.
2. We're near the lower Keltner Channel.  If we start to see some strength, in the form of closing on higher highs, then this is to be considered a bullish buying opportunity (sell some puts?)
3. The Know Sure Thing line is converged and basically isn't telling us anything.  We need the black line to head upwards for a bullish signal.

So, there is nothing in the price or ER that has me doing the "run away" dance, but ROKU is certainly not in a bull trend.  It's not in a bear trend either -- so we may be able to play on this.

Step 3:  Selecting the CC

Given the results of the MRO analysis, I'm not going to consider the front weeklies for ROKU.  On the table are the possibilities for 3/16:

Let's look at ITM --> ATM --> OTM calls for 3/16.  Here are the probabilities of ROKU being above/below a certain dollar amount on 3/16:

Click on the image to enlarge.

ITM-:  The deeper in-the-money call for ROKU (ROKU 180316C37, open interest 70 contracts) has a bid/ask of $1.60/1.85, so the likely fill would be $1.70 and including commissions, $1.69.  The ROO would be $169/3926 = 4.30% and the AROO would be 4.30% * 365 / 11 days to expiration = 143%.  The new cost basis would be $39.26 - $1.69 = $37.57, which is above the call strike.  I'd be guaranteed to lose $57 with this contract.

ITM:  The in-the-money call for ROKU (ROKU 180316C37.5, open interest 34 contracts) has a bid/ask of $1.35/1.65, so the likely fill would be $1.45, and including commissions, $1.44.  The ROO would be $144/3926 = 3.67% and the AROO would be 3.67% * 365 / 11 days to expiration = 121%.  The new cost basis would be $39.26 - $1.44 = $37.82, which is above the call strike.  I'd be guaranteed to lose $32 with this contract.

ATM:  The at-the-money call for ROKU (ROKU 180316C38, open interest 97 contracts) has a bid/ask of $1.25/$1.40, so the likely fill would be $1.30, and including commissions, $1.29.  The ROO would be $129/3926 = 3.29% and the AROO would be 3.29% * 365 / 11 days to expiration = 109%.  The new cost basis would be $39.26 - $1.29 = $37.97, inclusive of commissions.  If called away, I would make ($38 - 37.97) = $0.03, and the total return on the chain isn't even worth calculating.  This is the break-even scenario.

OTM:  The out-of-the-money call (ROKU 180316C38.5, open interest 11 contracts), which has a bid/ask of $0.70/$1.20 and would provide a likely fill at $0.90.  Including commissions this would drop to $0.89.  The ROO would be $89/3926 = 2.27% and the AROO would be 2.27% * 365 / 11 = 75%.  The new cost basis would drop to $39.26 - 0.89 = $38.37, inclusive of commissions.  If called away, I would make ($38.50 - $38.37) = $0.13, so the total return on the chain would be 13/3837 = 0.34%, and the annualized return would be 0.34% * 365 / 21 days since inception = 5.89%.

OTM+:  The further out-of-the-money call (ROKU 180316C39, open interest 138 contracts), which has a bid/ask of $0.80/$1.05 (note the bid/ask compared to the 38.50 call) and would provide a likely fill at $0.90.  Including commissions this would drop to $0.89.  The ROO would be $89/3926 = 2.27% and the AROO would be 2.27% * 365 / 11 = 75%.  The new cost basis would drop to $39.26 - 0.89 = $38.37, inclusive of commissions.  If called away, I would make ($39 - $38.37) = $0.63, so the total return on the chain would be 63/3837 = 1.64%, and the annualized return would be 1.64% * 365 / 21 days since inception = 28.54%.

I note that the chances of being called away are 39% with this call.

OTM++:  The further out-of-the-money call (ROKU 180316C40, open interest 6846 contracts), which has a bid/ask of $0.60/0.70 and would provide a likely fill at $0.60.  Including commissions this would drop to $0.59.  The ROO would be $59/3926 = 1.50% and the AROO would be 1.50% * 365 / 11 = 50.0%.  The new cost basis would drop to $39.26 - 0.59 = $38.67, inclusive of commissions.  If called away, I would make ($40 - $38.67) = $1.33, so the total return on the chain would be 133/3867 = 3.44%, and the annualized return would be 3.44% * 365 / 21 days since inception = 60.0%.

I note that the 40 strike has 32% chance of being called away.

OTM+++:  The further out-of-the-money call (ROKU 180316C41, open interest 215 contracts), which has a bid/ask of $0.40/0.50 and would provide a likely fill at $0.40.  Including commissions this would drop to $0.39.  The ROO would be $39/3926 = 0.99% and the AROO would be 0.99% * 365 / 11 = 33.0%.  The new cost basis would drop to $39.26 - 0.39 = $38.87, inclusive of commissions.  If called away, I would make ($41 - $38.87) = $2.13, so the total return on the chain would be 213/3887 = 5.48%, and the annualized return would be 5.48% * 365 / 21 days since inception = 95.2%.

The 41 call has a 30% chance of being called away, which is more/less 1 standard deviation.  I note too that for just 2% difference in the chances of being called away I could pocket $80 additional dollars, which is a good tradeoff.

The order is 

STO 1 ROKU 180316C41 limit 0.40 GTC

As always, this is NOT a recommendation for you.  It's what *I* am going to do.  Your individual situation may be very different from mine and this could be a rabbit hole in your universe.

Here's the P&L chart:

Click on the image to enlarge.

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If you see anything wrong in my calculations, please let me know.  I think I have all of the bugs out of the spreadsheet that I used, but ya never know until others look at it.

As with all my ramblings, you are responsible for your own investment decisions and I am not.  Please do your own diligence, and please take ownership for your actions.  Nothing I've written here is to be considered investment/trading advice -- it is only provided for educational purposes.

Regards,

pgd