If you’re willing to think outside the box, a bullish-positioned butterfly in Alphabet Inc (GOOG, GOOGL) looks like the “sweet spot” for profiting with reduced risk in (always) less certain times. Let me explain.
It been a bumpy ride in recent months for GOOGL stock investors, punctuated by a recent profit miss which sent shares gapping lower by about 6% back in late April.
Yet despite the earnings disappointment and bearish buzz of late over ad-blocking browsers or “the bots”, as a revenue giant killer, it’s not time to write-off shares of GOOGL and Alphabet just yet.
The fact is, GOOGL stock still sports double-digit profit and revenue growth and trades at a fair multiple until proven otherwise.
Our advice, don’t let one quarterly miss and hysteric alarm bells tied to a technological challenge for Alphabet’s search engine, Google, fool you.
By taking stock of Google’s parent company’s size advantage, access to the best talent, healthy cash position and proven, visionary management team, this strategist believes the potential positives still outweigh the more vocal and bearish uncertainty surrounding GOOGL stock right now.
Secondarily, GOOGL’s chart is also demonstrating technical support for longer-term gains. And while the stock isn’t altogether prepared to build massive shareholder value, it does look ready for a moderately bullish-positioned butterfly spread.
GOOGL Daily Stock Chart
Looking at the GOOGL stock price chart, shares in our estimation have gained bullish technical credibility given a second, base-on-base triangle pattern that’s currently developing.
The lengthy technical combination works to neutralize past gains, while a recent successful test of the long-term 200-day simple moving average suggests this powerful platform in GOOGL stock will resolve itself as a breakout to all-time-highs.
First things first though. Failing a near-term catalyst and intact pattern resistance, anticipated upside gains for GOOGL will be limited to a couple percentage points over the next couple weeks.
GOOGL Stock Long Bullish Butterfly Spread
One moderately bullish spread in GOOGL stock that’s viewed favorably, given our discussion, is the June $750 / $765 / $780 call butterfly for $3.50 or better.
Risk for the butterfly position is limited to the initial debit paid. The spread allows for a potential (perfect world) gain of $11.50 or 328% at expiration if GOOGL shares land squarely at the sold $765 center strike.
Given our view, GOOGL stock is likely to only make limited gains in the near-term. This butterfly compares favorably to a more expensive call purchase or even a vertical due to its countering vertical construction.
Bottom line, while the lesser cost of this GOOGL butterfly comes with the price of not wanting too much upside appreciation beyond the $765 sweet spot, it’s also a risk which appears totally suitable given the environment at hand.
The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. Mr. Tyler currently holds no positions in any of the securities discussed in his personal or managed family accounts but may initiate, for better or worse, a position in two or more business days following the publication of this article.
