Earnings season is in full swing, and Internet giants are taking the lead early in the week. Specifically, Wall Street will be focused on current king of search, Google (GOOG, GOOGL), and the former top Internet company, Yahoo (YHOO).
The sector has taken a beating during the past month, with the PowerShares Nasdaq Internet Portfolio ETF (PNQI) falling more than 16% since topping out near $75 in early March. Many investors will be wondering not only if GOOG/GOOGL and YHOO will be able to reverse that trend, but how to trade this duo heading into this week’s reports.
Read on for a closer look and a pair of options trading ideas.
Google (GOOG, GOOGL)
Google earnings will be interesting this time around, as Wall Street digests the post-split earnings per share data on what is likely to be an adjusted scale.
At the beginning of April, Google split into GOOG stock (Class C shares with no voting rights), and GOOGL stock (Class A shares worth one vote each). The move has been speculated as allowing Google to issue Class C shares as a way to finance acquisitions without diluting Google’s control on the voting pool.
The company is expected to report after Wednesday’s bell, and Google earnings estimates are currently at $6.40 per share for the most recent quarter. The brokerage community has slightly higher expectations, however, with EarningsWhisper.com revealing that the whisper number for Google earnings arrives at about $6.64 per share.
Digging deeper, we find that optimism abounds on GOOG stock. Specifically, the equity has attracted 35 “buys” and 11 “holds,” with nary a “sell” rating to be found. That said, the consensus 12-month price target for GOOG stock rests at $670, representing a modest premium of about 23.5% to the stock’s current trading range.
Options traders are also excited about Google’s prospects. For instance, GOOG stock’s April/May put/call open interest ratio of 0.7 indicates that calls easily outnumber puts among options set to expire within the next two months. The most popular call is the out-of-the-money April $570 strike, where 1,098 contracts are currently open. Another 912 calls reside at the out-of-the-money $560 strike.
Click to Enlarge Takings a closer look, implieds on April 18 options are pricing in a relatively tame potential post-earnings move of about 6.4% for GOOG stock. This places the upper bound at $579.76, while the lower bound lies at $510.24.
2 Options Trades for GOOG Stock
Those options traders looking to bet on a rebound in GOOG stock might want to consider a weekly May $540/$575 bull call spread.
At last check, this spread was offered at $16.20, or $1,620 per pair of contracts. Breakeven rests at $556.20, while a maximum profit of $18.80 is possible if GOOG closes at or above $575 when May options expire.
Alternately, if near-the-money GOOG options are just a bit too pricy for your portfolio, a May $500 put sell might be a safe bet of capitalizing on the stock’s staying power and technical support.
At last check, the May 500 put was bid at $6.20, or $620 per contract. The upside to this put sell strategy is that you keep the premium as long as GOOG stock closes above $500 when May options expire. The downside is that should Google stock trade below $500 near or after May options expire, you could be assigned 100 shares for each put sold at a cost of $500 per share. That’s unlikely to happen unless Google really fouls things up, but a warning you should take seriously regardless just because of how pricey that purchase would be.