The market has spoken. And that, my friends, means it’s time to get long Alphabet Inc (NASDAQ:GOOGL). For like-minded contrarian investors, though, I have a trade on GOOGL stock that will serve you much better than a straight-up buy.
Let’s face it: The market is usually wrong. Or, at least, it’s right until it’s not — and that typically happens faster than you or I can sneeze. It’s why GOOGL looks great right now.
Alphabet stock — along with many technology giants such as Apple Inc. (NASDAQ:AAPL), Facebook Inc (NASDAQ:FB) and Amazon, Inc. (NASDAQ:AMZN) — shed the broader market’s enthusiastic “Trump is pro-business!” bid since winning the largest political coupe in decades.
Potentially very favorable repatriation of overseas cash hoards have been trumped by a couple factors. Among top issues are net neutrality rules, new trade mandates and possible tariffs with the likes of China, which could prove costly for GOOGL and other tech names.
Regarding Apple, Facebook and Amazon, there’s even the element of company-specific grudge matches between those companies and our president-elect. I suppose Alphabet’s only crime is being one of those liberal Silicon Valley names guilty of something, somewhere, inside Trump’s head.
At this moment, all we know for certain is Trump has the political theater shtick nailed. But let’s not get ahead of ourselves regarding GOOGL stock and all of the presidential what-ifs.
Instead, let’s just take advantage of the uncertainty hanging overhead — and of the investors who have wrongly played Alphabet.
GOOGL Stock Daily Chart
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Also, Alphabet stock has put together a small double-bottom test that’s holding the zone 38%-50% retracement area, as well as GOOGL’s 200-day simple moving average. So this is supportive, too.
Could Alphabet stock fail to find a bottom near our current lows of the past week? Sure. Anything is possible, as we learned on Tuesday. Nevertheless, I’m optimistic that GOOGL stock will be great again!
Now, let’s look at the best way to play Alphabet shares.
How to Trade Alphabet Here
The GOOGL Dec $750/$745 bull put spread is attractive based on what’s been presented.
With Alphabet shares at $779, the out-of-the-money vertical fetches a credit of $1.20 per contract. That works out to a return of nearly 32% with defined risk of $3.80, regardless if the stock craters during the life of the spread.
This somewhat optimistic bull play has a margin of safety of 3.9% in GOOGL stock while still taking in the entire credit.
If you fail to capture the credit and shares decline below $750, you can receive Alphabet through an opportunistic assignment. If you want to be a shareholder through the process, the highest you would pay is $748.80 per share based on the $750 put and subtracting the $1.20 credit.
Perhaps more attractive, this trader-turned-investor could conceivably buy GOOGL stock at an effective entry price that’s never more than the current share price plus $4.80 (or roughly 0.06% of the currenty share price), no matter how disastrous the chart looks in the week ahead.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. 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. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
