Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is shining bright on a good earnings report. I’ve been a long-time fan of the company and its products. GOOGL management has overcome scrutiny by separating its core cash-cow ad business from its peripheral and more questionable ventures.
Fundamentally, I think that Alphabet earnings proved once again that the company continues to dominate its bread-and-butter search arena. We now also know that it’s making good foray into other hot zones like competing against Amazon.com, Inc. (NASDAQ:AMZN) web services. I am also confident that Google’s YouTube video giant will eventually damage Netflix, Inc. (NASDAQ:NFLX) P&L sooner rather than later.
Click to Enlarge I typically don’t like to chase sizable gaps higher like GOOGL’s earnings move into $800 per share. However, I am confident that I can still structure a few trades to generate income from GOOGL stock for the next few months.
Technically, It has defended the $700 per share zone a few times under scary headlines. So it should be able to repeat performance should the need resurface.
Trade #1: Sell the GOOGL Dec $680/$675 credit put spread. This is a bullish trade for which I collect 65 cents per contract. This trade has a 90% theoretical chance of success. It can potentially yield 15% on money at risk. Ideally, I need GOOGL to stay above $680 per share through mid December.
Trade #2: Sell the GOOGL Oct $870/$875 credit call spread. This is a bearish trade for which I collect 70 cents per contract. This trade has an 85% theoretical chance of success and potentially can yield 17% on money at risk. Ideally, I need GOOGL to stay below $870 per share through October expiration.
Taking both trades leaves me short a lop-sided offset iron condor. This is a self hedged trade that usually is easier to manage than a directional one. Taking both sides also reduces my dollars at risk. I collect more premium while keeping the maximum loss the same thereby improving the potential yield.
Ideally I need GOOGL to stay between both spreads sold. Since I collect a total of $1.35 for the staggered iron condor, my reward would be about 30% yield on money risked.
Ideally, I want nothing to happen while I hold the trades open. I am not obliged to carry the trades through their expiration. I can close either or both for partial profit or loss at any time. Since Google just gapped-up on earnings I could lower the credit put spread a few bucks for less reward.
Trades like these are designed to be boring. But remember, when it comes to credit spreads, boring is beautiful.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.
