Google: A $700 Bargain?

by Joseph Hargett | September 11, 2012 8:27 am

Shares of Internet search behemoth Google (NASDAQ:GOOG[1]) have been on fire lately. In fact, following an impressive 24% rally from its June low, GOOG is now trading north of $700 for the first time since January 2008.

That said, the question on many investors’ minds is “Can Google hold its newfound perch?”

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The run has left GOOG a bit overextended, with its 14-day RSI trading north of 70. Still, despite weak price action Monday, the stock held its ground above the seventh-century mark. What’s more, the shares still maintain key support at their rising 10-day moving average.

GOOG has only closed one session below this trendline since July 17. Consolidation into the $700 level, or pullback to this moving average, could bring bargain-hunters to the table.

Options traders appear to be leaning bullish toward GOOG, with call open interest outpacing put open interest among near-term activity. Specifically, the stock’s front-month put/call open interest ratio arrives at 0.92.

Taking a closer look at GOOG’s open interest configuration reveals that traders have yet to fully adjust to the stock’s recent rally. For instance, peak September call open interest, totaling 9,889 contracts, lies at the in-the-money 680 strike. Additionally, some 7,600 calls also are open at the at-the-money September 700 strike.

On the put end of the spectrum, peak September open interest totals a mere 6,853 contracts at the deep out-of-the-money 650 strike. Other notable GOOG put accumulations include the roughly 2,000 contracts open at the September 680, 670 and 660 strikes.

If you are looking to join the fray in the GOOG options pits, a bit of caution might be warranted. One way to benefit from support at the $700 level while hedging the stock’s overbought condition is to open up a bull put spread.

At last check, the September 700/690 bull put spread was bid at $3.90, or $390 per pair of contracts. The $3.90 is the maximum profit on the position, which traders will keep as long as GOOG closes north of $700 when September options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

  1. GOOG:

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