Hop Aboard the Charging Google Train

by John Kmiecik | May 13, 2013 8:42 am

Hop Aboard the Charging Google Train

You probably have heard the saying that it is hard to stop a speeding train. It’s true — when something is that big and powerful, it usually takes quite the effort to slow it down.

The same can be said of this stock — and this trade idea is looking to capture a continued move higher.

Google (NASDAQ: GOOG — $880.23): Debit Call Spread

The trade: Buy the May 24 880/890 bull call spread (by buying the May 24 880 call and selling the May 24 890 call) for $5 or less.

The strategy: The maximum potential profit for this trade is $5 ($10 – $5) if GOOG is trading above $890 at May 24 expiration. The maximum loss is $5 (or what was paid for the spread) if GOOG is trading below $880 at expiration. Breakeven is $885 at expiration based on a cost of $5.

The rationale: We can talk about the fundamentals of Google (which are incidentally pretty good judging by many analysts) all day long, but really this trade idea boils down to momentum — and this stock has it.

GOOGchart 300x136 Hop Aboard the Charging Google Train
Click to Enlarge
After announcing earnings in mid-April, Google has been on a tear higher, so apparently it wasn’t just analysts that thought the stock looked attractive as a buy.

The biggest threat for this trade idea is the minor resistance at $880. The last couple of sessions, GOOG has traded to that level and teetered back and forth, and it closed just above it on Friday. If the stock can hold the break of resistance — which would be a bullish sign — it looks like it would have a fairly good chance of reaching $900 sometime in the future.

But first things first: Let’s make it to $890 by May 24. Go, Google, go!

As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.

Source URL: http://investorplace.com/2013/05/hop-aboard-the-charging-google-train/
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