Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) took its turn in the earnings limelight last week, and investors were not happy with the results. Offering up a rare miss, Alphabet said it earned $9.36 per share versus expectations of $9.63 per share, while revenue arrived at $26.06 billion compared to predictions for $25.22 billion.
GOOGL stock has since fallen more than 5%, and its edging lower once again today.
But the shares were due for a bit of a selloff, as GOOGL stock was overbought heading into earnings amid an overly enthusiastic sentiment backdrop. Contrarian investors know that this is a recipe for short-term disaster on even the slightest hiccup.
Click to Enlarge Now that the knee-jerk selling has about run its course, it’s time to get back to being realistic on GOOGL stock’s prospects. Technically, Alphabet shares remain in a long-term uptrend, supported by its 10-week and 20-week moving averages.
Furthermore, these trendlines completed a bullish cross earlier this month, which could bring bargain hunters to the table once the post-earnings gyrations have subsided.
As for sentiment, the fourth-quarter earnings blip for GOOGL stock hasn’t shaken the brokerage community one bit. And it shouldn’t. According to Thomson/First Call, all but two of the 48 analysts following Alphabet Inc rate the shares a “buy” or better. Additionally, the 12-month price target of $988.47 represents a modest premium of only about 19% to GOOGL’s Monday close.
With search ad revenue holding strong and Alphabet expanding its hardware program, we may even see a few upward revisions in the next month or so.
On the options front, GOOGL Feb./March put/call open interest ratio has risen slightly in the past week to rest at 0.72, with puts gaining a bit of traction in the wake of last week’s quarterly report. For the March series, traders are still eyeing the $860 and $900 strikes, while put traders are focused on $800 and $750.
Overall, March implieds are pricing in a potential move of about 5% in the next two months. Currently, this places the upper bound at $865.02, while the lower bound lies at $782.64 from Monday’s close. I would be surprised to see GOOGL stock trade south of $800, as it would take some unexpectedly poor news from Alphabet or a significant turn in the overall market. A rally to $860 seems more likely, though resistance at $850 could be a stumbling block.
2 Trades for GOOGL Stock
Put Sell: The safest route to profit on GOOGL stock right now would be to bank on technical support and sell option premium. Right now, the March $800 put looks like a solid bet for such a play. At last check, this put was bid at $12, or $1,200 per contract.
As usual, you keep the premium as long as GOOGL stock closes above $800 when these options expire. The downside is that should Alphabet trade below $800 ahead of March expiration, you could be assigned 100 shares for each sold put at a cost of $800 per share.
Call Spread: If you are more bullish on GOOGL stock’s prospects, then a March $830/$850 bull call spread has potential At last check, this spread was offered at $8, or $800 per pair of contracts.
Breakeven lies at $838.00, while a maximum profit of $12, or $1,200 per pair of contracts, is possible if Alphabet closes at or above $850 when March options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
