by John Kmiecik | December 2, 2013 8:52 am
As the holiday season nears every year, many techies put Apple (AAPL) products on their gift wish list. But times have changed, and that might not be as prominently true as it has in previous years. Here’s a trade idea on Google (GOOG), which has made great strides to compete with Apple.
The trade: Sell the GOOG Dec 1035/1040 Put Credit Spread (selling the Dec 1040 put and buying the Dec 1035 put) for $1 or better.
The strategy: The maximum potential profit for this trade is $1 if Google stock is trading above $1,040 at December expiration. The maximum loss is $4 ($5 – $1) if GOOG is trading below $1,035 at expiration. Breakeven is $1,039 based on a credit of $1.
The rationale: Since Google handily beat earnings back in October, GOOG stock has been on quite the run. The company has made great strides to compete against Apple, including Google Fiber, which is an Internet service that delivers 100 times the speed of broadband, and Google Glass, which is a wearable head-mounted computer. GOOG also is opening pop-up stores in major cities so that customers can experience all of the company’s gadgets. Apparently all this innovation has been working, if the last earnings report was any indication.
Even though the implied volatility of Google stock options are relatively low (meaning relatively cheap in option terms), this still looks like an opportunity to sell premium.
Click to Enlarge Since Google stock moved above $1,020, it hasn’t closed below that level again. GOOG was unable to close above $1,040 until it did so this past week.
For this trade idea to work, that prior resistance area of $1,040 now needs to become support, just like the $1,020 area has acted as support.
Even though it might be extended, with Google stock at all-time highs, it should be able to continue to move higher even if it does pull back at some point.
Just like I have said in the past, go GOOG go!
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities. Get a free trial of John’s live options trading room here.
Source URL: http://investorplace.com/2013/12/credit-spread-google-goog/
Short URL: http://invstplc.com/1nzD7iJ