Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is back in favor these days. But bullish investors may want to give today’s benefit of the doubt some margin of safety. With that in mind, I have a plan for GOOGL stock.
Back in early summer, I wrote about getting long GOOGL stock using a bullishly positioned butterfly. Our thesis for Alphabet was simple.
First, future revenue concerns tied to overblown (and now all but MIA) bearish worries over ad-blocking bots spelled a nice opportunity for bullish GOOGL investors. Crowd hysterics over Alphabet’s quarterly miss and bearishly extrapolating the “what ifs” were allowing traders to buy a best-in-breed tech stock at a discount to fair value and a below-market multiple.
Secondly, Google’s stock chart was showing a base-on-base triangle that appeared to be a nice entry point. That came at a time when a less-certain market still faced the Brexit.
To compensate for this, I proffered a bullish GOOGL stock butterfly spread. While that failed to work, given what has transpired in the market — and given that Alphabet systematically knocking it out of the ballpark when it reported earnings last month — this strategist thinks GOOGL is worth a second look.
GOOGL Daily Stock Chart
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Specifically, following the second triangle’s demise, a larger bullish “W” or corrective double-bottom base developed. That’s good news. The additional time spent consolidating should provide a more durable technical platform for Alphabet to forge new highs.
One caveat: GOOGL is testing its former base high after narrowly breaking out last week. The failure to deliver upside momentum could beg the question, “Is GOOGL establishing a double-top formation?”
The Trade on GOOGL Stock
A better question to ask: How can a bullish GOOGL trader still make a profit amid this uncertainty?
Well, one limited-risk spread that offers a bit of flexibility here is an out-of-the-money put credit spread. Reviewing the options board, the Sep $770/$760 bull put spread for a credit of $1 is attractive.
This spread trade will capture the full credit if Alphabet stock remains above $770 by expiration. This margin of safety allows for a decline of nearly 4.5% in the stock — and for all intents and purposes, a way to capitalize profitably on a potential (bullish) earnings gap fill.
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.
