Alphabet Inc (GOOG, GOOGL) is becoming quite comfortable in its home on the range. Despite two earnings-induced departure attempts over the past eight months, Google stock has been altogether unwilling to trend anew.
But that’s okay. Opportunity still knocks for traders trained in the art of option selling.
The $100 range between $800 and $700 is creating some easily definable levels to trade around. Sure enough, the “buy the dip, sell the rip” crowd has found Alphabet’s behavior of late very accommodating. I suspect we have yet another bearish opportunity in the making for the search engine king.
Disappointing earnings took Google stock from the top to the bottom of its range in one fell swoop last month. The initial test of $700 held and the stock has clawed its way back to the middle of its range, an area which is also where it gapped following earnings.
If you’re willing to wager Google stock has trouble returning to the top end of its range anytime soon, selling bear call spreads is an attractive proposition here.
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Overhead resistance looms large for GOOGL in the form of the unfilled earnings gap near $750, as well as the 50-day moving average perched at the same price level.
Profits Await in Google Call Spreads
The beauty of bear call spreads lies in their high probability to profit. Rather than wagering that Google stock is going directly higher or lower in the short run, we can simply sell out-of-the-money call spreads near the top end of its range. Such a position will profit as long as Alphabet doesn’t break through the $790 level over the coming month.
Sell the June $790/$795 call spread for 50 cents or better. The max reward is capped at the initial 50 cent credit and will be pocketed as long as Google stock sits below $790 at June expiration. The max risk is limited to the distance between strikes minus the 50 cent credit, or $4.50, and will be forfeited if the stock sits above $795 at expiration.
To limit the loss, I suggest bailing if GOOGL rises to the short call strike at $790.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
