Google Stock: 2 Ways to Play GOOGL Before Thursday’s Report

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Google (GOOG, GOOGL) joins the earnings fray after the close tomorrow night, and the company’s shares could certainly use some uplifting news. Google stock is off nearly 8% during the past week, with the broad-market correction taking a toll on the shares. With GOOGL trading near oversold levels, the temptation is high for Google options traders to jump on the bearish bandwagon.

goog google earnings stockDiving into the numbers, Wall Street is looking for a third-quarter profit of $6.53 per share from the Internet giant. Revenue is seen arriving at $13.2 billion. However, GOOGL investors might rightfully be on edge, as the company has missed the consensus estimate in the past three quarters.

Investors also will be keeping a close eye on paid clicks, which are seen rising by 6.3% during the quarter, and the cost per click, which is expected to fall 2.5%. These factors are key, as Google derives the majority of its revenue from advertising.

Clicks are fast becoming a major issue for GOOGL investors, as growth in paid clicks has been flagging in recent years even as the cost per click declines. So far, Google has made up for declining costs in volume of clicks, but it’s a game of diminishing returns at this point.

Poor price action and questionable clicks have not deterred Google stock bulls, however. According to Thomson/First Call, GOOGL has attracted a whopping 39 “buy” ratings, compared to just eight “holds” and no “sell” ratings. Additionally, the 12-month price target of $670 for Google stock represents a 22% premium to yesterday’s close at $548.69.

Turning toward Google options activity, traders here are cautiously optimistic. Currently, the stock’s front-month October put/call open interest ratio arrives at 0.69, with traders expressing a clear preference for calls heading into tomorrow’s quarterly report. Peak call open interest totals 4,529 contracts at the out-of-the-money Oct $600 strike, while peak put open interest numbers 3,483 contracts at the in-the-money Oct $560 strike.

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Overall, October implieds for Google options are pricing in a potential post-earnings move of about 5%, placing the upper bound near $577.90 and the lower bound near $522.10. That said, GOOGL has averaged a single-session post-earnings move of 4.6% following the company’s previous four quarterly reports.

In other words, Google options are a bit more expensive at the moment, even when compared to prior earnings periods.

2 Ways to Play Google Stock

Call Spreads: For those options traders looking to side with the bulls ahead of Google earnings, a Nov $545/$570 bull call spread has potential. At last check, the spread was offered at $10.90, or $1,090 per pair of contracts. Breakeven rests at $555.90, while a maximum profit of $14.10 is possible if GOOGL closes at or above $570 when November options expire.

Selling Puts: Looking for an alternative way to play GOOGL ahead of earnings? If you are bullish on the stock, but not sure it’s going to take off fast enough for a call spread to realize a profit, a Nov $500 put sell might be a safe bet of capitalizing on the stock’s staying power and technical support. After the close last night, the Nov $500 put was bid at $7, or $700 per contract. The upside to this put sell strategy is that you keep the premium as long as GOOGL closes above $500 when November options expire. The downside is that should GOOGL trade below $500 ahead of November expiration, you could be assigned 100 shares for each put sold at a cost of $500 per share.

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


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/google-stock-googl-options/.

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