Search for Profits With Google Call Spreads

Many tech lovers who use the Nasdaq-100 as their benchmark for technology stocks have been bemoaning its recent underperformance. While the S&P 500 Index is up 6.6% on the year and has climbed well above last year’s highs, the Nasdaq-100 is up only 4.1% and remains well below its 2012 peak.

Nowadays, using the Nasdaq as the premier benchmark for the technology sector might not be the best idea. Apple’s (NASDAQ:AAPL) epic rise in market capitalization has led it to account for around 20% of the Nasdaq-100. So it’s fair to say as goes AAPL, so goes the entire Nasdaq-100 index. And since shares of AAPL have soured in recent months, the performance of the Nasdaq-100 has suffered.

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If you want to view the tech sector using a more balanced approach, try the First Trust Nasdaq-100 Equal Weight Index Fund (NASDAQ:QQEW). As shown in the accompanying chart, its trajectory has actually been quite similar to the S&P 500. Excluding AAPL, the technology sector has been keeping pace with everything else.

While AAPL has remained under pressure, other stocks in its sector have been flourishing.

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Take Google (NASDAQ:GOOG), for instance. After blasting to new all-time highs last week, the king of search has consolidated in a narrow range, which might act as a launching pad for its next upswing. The beauty of stocks at all-time highs is the lack of any overhead resistance, which makes it easy for them to simply melt higher.

And don’t let the price tag of GOOG scare you away. It’s possible to structure a call spread that costs less than buying one share of the stock.

To profit from GOOG’s eventual rise above $800, you could buy an April 790-800 call spread by purchasing the 790 call and selling the 800 call for a net debit of $5 or better. The maximum risk in the position is limited to the initial $5 paid and will be incurred if GOOG sits below $790 at April expiration. The max reward also is limited to $5 and will be captured provided GOOG rises above $800 by April expiration.

The spread offers the ability to double your money if GOOG can rise a mere $10, or 1.2%, in the next two months.

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

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