Alphabet Inc (GOOG, GOOGL) is on deck to release its second-quarter earnings report after the close of trading on Thursday, and investor sentiment is extremely bullish on the GOOG stock. However, Google earnings have come up short in each of the past six quarters and technical resistance looms large overhead.
For contrarian options traders, this backdrop is creating more than a bit of unease, but trading opportunities still abound.
For the record, Wall Street is expecting a profit of $7.20 per share for Google earnings, with revenue seen arriving at $18.54 billion. By comparison, Google earned $6.25 per share on $16.52 billion in revenue in the same quarter last year.
Despite the company’s earnings history, expectations remain quite high. For instance, EarningsWhisper.com reports that the third-quarter whisper number for Google earnings comes in at $7.37 per share — 17 cents better than the consensus.
Furthermore, 47 of the 49 analysts following GOOG stock rate the stock a “buy” or better, according to data from Thomson/First Call, with no “sell” ratings to be found. That said, there is room for a modicum of improvement from this bullish bunch, as the current 12-month price target of $777.50 represents a premium of only about 19.5% to GOOG’s Tuesday close.
Options traders aren’t quite as enthusiastic, however. Currently, the October/November put/call open interest ratio arrives at a modestly bullish reading of 0.82, with calls just edging out puts in terms of overall OI. This ratio slips to 0.78 for the weekly Oct 23 series, showing a bit more confidence in an solid report from Google earnings.
Click to Enlarge Overall, weekly Oct 23 series options implieds are pricing in a post-earnings move of about 6.6%. As a result, the upper bound lies at $692.79, while the lower bound rests near $607.21. Overhead resistance in the $670-$690 region is a concern for GOOG stock bulls, but a strong quarterly report could quickly put this resistance to rest.
Meanwhile, support should remain strong in the $620 area, with $600 acting as a floor for all but the worst post-earnings reactions.
2 Trades for GOOG Stock
Call Spread: For those options traders looking to side with the bulls ahead of Google earnings, a Nov $650/$700 bull call spread has a considerable potential. At last check, this spread was offered at $18.50, or $1,865 per pair of contracts. Breakeven rests at $668.65, while a maximum profit of $31.35, or $3,135 per pair of contracts, is possible if GOOG closes at or above $700 when November options expire.
Put Sell: Alternately, if GOOG’s option premiums are a bit too steep for your portfolio, then a put sell position is a potential alternative for profiting on a neutral-to-bullish post-earnings reaction. At last check, the weekly Oct 23 series $580 put sell was bid at $1.85, or $1,850 per contract. As long as GOOG stock closes above $580 when the weekly October options expire (at the end of this week), you retain the initial premium. However, if GOOG trades below $580 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $580 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
