I recently shared a story on how to get free profits from Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) stock. My profits came too fast, but luckily, now that the earnings are out, I have another chance to reset.
My interpretation of the GOOGL earnings is that the machine is still on rails. It’s a money-making machine with multiple assets that have over a billion users. Management is still somewhat in check when it comes to extraneous spending on wild ventures. So I am left worrying only on Wall Street’s perception when trading Alphabet stock.
I am bullish in the long term, so I will sell someone a losing lotto ticket. The trick is to find a level where GOOGL is not likely to go and let time do the rest.
Click to Enlarge The Trade: Sell the GOOGL Jan 2018 $650 put. This is a bullish trade for which I collect $16 per contract to open. This trade has a 90%-plus theoretical chance of success and a 23% price buffer from current levels.
By selling naked puts, I commit to buying the stock at my sold strike if GOOGL stock falls below it. So I only do this if I am willing and able to own the stock there. My breakeven level is $634 per share.
Usually I like to hedge my trade by taking an opposing trade to balance. But in this uber bullish environment, I will leave it un-hedged. Short of a market crash I should have enough time to manage price gyrations.
Selling naked puts is not suited for all portfolios or trader profiles. Risk tolerances vary, so I will offer an alternate trade with similar metrics. This will have finite risk, so a better fit would have more conservative approaches without changing the trade spirit.
The Alternate: Sell the GOOGL Jan 2018 $650/$640 credit put spread. This is also a bullish trade for which I collect $2.50 per contract to open. This also comes with a 90% theoretical chance of success. The yield on money risked would be 33%. All I need is GOOGL to stay above my sold spread to win.
I am not required to hold these options trades through expiration. I can close any of them 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.
