If you’re still following along on my trading coverage of Alphabet Inc (NASDAQ: GOOGL), you know we had largely positive results in June. The full-bearish play on GOOGL stock — the June $960/$980 bear put spread — hit its maximum profit potential, trading below $960 on expiration and allowing you to realize a profit of roughly 300% in less than a month! So if you traded that, congratulations!
Of course, we have Goldman Sachs’ overbought note on FANG stocks like Facebook Inc (NASDAQ:FB) and Amazon.com, Inc. (NASDAQ:AMZN) to thank for those returns.
My headline recommendation from May 26, a June $950 put sell, might have a been an issue for some of you, however. GOOGL stock traded below $950 on at least two occasions during the two weeks prior to June expiration, meaning that some traders may have been assigned shares.
With Alphabet trading just shy of $970 today, you could sell shares for about a 2% profit — or hold onto them and check out today’s trade recommendations a bit further down.
This month, I’m still feeling a bit wary on Alphabet stock.
The overall market wants to go higher, but falling crude prices are rising inflation concerns, especially when it comes to the Fed’s policy of higher interest rates. None of this directly affects GOOGL, but broad market weakness could be a contributing factor to any trade going forward.
Looking at GOOGL stock directly, we find that the sentiment picture has dimmed a bit, but still remains largely bullish.
Alphabet Sentiment and Options
Click to Enlarge On the technical front, GOOGL stock has worked its way out of overbought territory that plagued the shares in May, and support is firming up in the $940/$950 region. However, resistance remains a concern overhead near $980 — and above that, $1,000.
The problem for Alphabet is that there is little will outside of broader-market trends to help push the shares past $980, let alone $1,000.
In fact, there is the very real possibility that more brokerage firms will re-evaluate their bullish positions on GOOGL stock, like Canaccord Genuity did last week by downgrading the shares. And there is plenty of room for more, as Thomson/First Call reports that 38 of the 44 analysts following GOOGL stock rate the shares a “buy” or better.
In the options pits, speculative short-term traders remain rather cautious on the stock.
For instance, the July put/call open interest ratio rests at 0.94, with calls and puts nearly even in terms of OI. Overall, July implieds are pricing in a potential move of about 3.66% for GOOGL stock through expiration. This places the upper bound at about $1,002.90, with the lower bound at $932.10.
Let’s look at the trades.
2 Trades for GOOGL Stock
Call Sell (Covered): If you happened to get assigned Alphabet shares after last month’s put sell recommendation, this trade is for you. By selling premium, you can bank a bit of cash and set a target for selling yours shares.
Since we’re looking to ditch whatever we may have picked up last month, we’re setting the bar low: Sell the Jul $980 call.
At last check, this call was bid at $20.13, or $2,013 per contract. If GOOGL stock trades north of $980 ahead of expiration, your shares should be called away, banking you a 3.1% gain on the stock from the $950 purchase price last month in addition to the premium collected.
If it doesn’t trade north of $980, you still keep the premium and can repeat the process next month.
Call Spread: Alphabet wants to go up; I’m just unsure whether analysts or the broader market will allow it. FANG stocks have rebounded nicely of late, indicating that GOOGL stock could have some limited upside potential. For those looking to take a chance, the Jul $975/$980 bull call spread offers a nice potential return.
At last check, this spread was offered at $1.63, or $163 per pair of contracts. Breakeven lies at $976.63, while a maximum profit of $3.37, or $337 per pair of contracts, is possible if Alphabet closes at or above $980 when July options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
