Since the U.S. elections, the consensus has been to sell mega-cap tech and roll into small caps — especially financials. As a result, small caps rallied two weeks in a row and finally set a new all-time high. Contrast that with Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), which recently lost an important support level around $790 per share. During the same period of time, GOOGL stock was caught up in the rotation reflationary Trumpian trade.
Click to Enlarge This doesn’t indicate fundamental weakness on Alphabet’s part. It wasn’t alone. Other favorites also faltered — most notably Facebook Inc (NASDAQ:FB) and Amazon.com, Inc (NASDAQ:AMZN). All these blue chips were sold as the small caps rallied to new highs.
The selling in mega tech has abated a little in the last few days, however. In fact, counting Monday, GOOGL stock looks like it’s the healthiest of the three relative to their dips.
My last trade on GOOGL was a nice and easy win in spite of the volatility. I set a December iron condor that created income from thin air.
Today, I’m looking to reset a similar trade for a chance to rinse and repeat. I want to range-trade Alphabet and try to create income out of thin air.
2 Trades on GOOGL Stock
Trade No. 1 — The Bet: Sell a Dec. 30 $740/$730 credit put spread for 90 cents per contract. From current levels, I have a 6.5% price buffer and an 85% theoretical chance of success. The reward if successful is 10% yield on money risked.
Trade No. 2 — The Hedge: Sell a Dec. 30 $850/$860 credit call spread for 60 cents per contract. To win, I need the price to stay below my sold spread while I am in the trade. My price buffer from the current level is 7%. This is closer than ideal, especially in this uber-bullish environment. Caution is warranted.
Taking both sides of this setup puts me in a sold iron condor for Dec. 30. To succeed, I need GOOGL stock to stay between both spreads sold through expiration. This is a rangebound trade for which I collect a total of $1.50 per contract to open.
If successful, the trade would yield 17% on money risked overall.
I will not let this trade get away from me. I am not required to hold either side through expiration. I can close either at any time for partial gains or losses.
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.
