Capture Up to 250% in Alphabet Inc (GOOGL) Stock

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The trend these days is looking a bit friendlier in shares of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). But if you’re looking for GOOGL stock to rally while protecting your own bottom line through earnings, purchasing a low-cost, modified- and limited-risk spread is an attractive alternative. Let me explain.

Capture Up to 250% in Alphabet Inc (GOOGL) Stock
Source: Shutterstock

A month ago, the situation in GOOGL stock, off and on the price chart, warranted a more cautious stance on the part of bullish investors in our estimation.

Conditions in GOOGL weren’t dire, but a recent Goldman Sachs downgrade and souring tech stock sentiment (following an overbought rally) had this strategist looking at a more defensive spread idea, before turning bullish, using an unorthodox put butterfly credit spread.

Shares in fact did manage to move lower by a couple percent, netting the correction’s total decline at just over 9%. It’s a healthy pullback to be sure, especially for a mega large-capitalization stock sporting a market Beta of 0.92. That point is made all the more compelling if one compares the S&P 500’s sub 2% and Nasdaq’s 5.5% corrections from their respective June highs. But is a lasting bottom in place in GOOGL stock?

Personally, nobody except perhaps Goldman Sachs knows when a bottom may have been put in in advance of a turnaround. Nevertheless, I do see sufficient evidence on GOOGL stock’s price chart worthy of considering a bullish options strategy focused on capturing some anticipated upside without breaking the bank.

GOOGL Stock Weekly Chart


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Source: Charts by TradingView

At the time, a lightening fast reversal from all-time highs unwound an overbought weekly Bollinger band condition. However, that bit of good news was countered by a still prone stochastic position and Alphabet’s price spread relative to the 40-week, or 200-day, simple moving average.

Currently, and following a few more weeks of consolidating and a more meaningful corrective low, conditions are looking better for Alphabet shares.

Bottom line, with GOOGL now flirting with an oversold stochastics condition with a bullish weekly chart hammer confirming a successful test of the upper channel line for support. Net, net it’s time to be look for some upside capture in the coming weeks using a lower and limited-risk spread on Alphabet.

GOOGL Stock Modified Bullish Call Butterfly

Reviewing GOOGL stock’s options board and in anticipation of Alphabet’s uptrend reasserting itself, a targeted and modified bullish butterfly makes sense.

With GOOGL at $951, the Aug $985/$1000/$1005 butterfly is priced conservatively for a debit of $4.25 per long butterfly.

What’s this variation on the butterfly offer bullish traders? For starters, risk is contained to just less than 0.50% of GOOGL stock if shares remain below $985 at expiration.

Moreover, the opportunity to accrue profits below the $985 strike call is possible. This is due to the butterfly’s positive deltas and the embedded 15 point wide $985/$1000 spread compared to the tighter $1000/$1005 bear call spread.

Also, if GOOGL stock were to make new corrective lows, a broken hammer on the Alphabet chart wouldn’t put the trader at increased risk. Further, with losses to contained to less than 0.50% and depending on one’s own risk tolerance, there’s little doubt the trader would be in a stronger financial and mental position to consider a second attempt at positioning during a deeper corrective move.

Lastly and come expiration, if GOOGL stock is sitting at $1000, profits would approach $10.75, or a return of 250%. That’s as sweet as it gets. However and also nice, if Alphabet manages to jump above the $1005 call, due to the fore-mentioned width contrast of the two verticals, this bull is able to keep $5.75 in profits.

And given an earnings report in late July, that’s a nice insurance policy to own just in case.

Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 and StockTwits.

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 and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/capture-up-to-250-in-alphabet-inc-googl-stock/.

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