by Joseph Hargett | July 15, 2014 9:03 am
Internet giant Google (GOOG, GOOGL) is on deck to release its second-quarter earnings report after the close of trading this Thursday, and Google stock could be poised to make a run at fresh all-time highs.
While analysts are waiting in the wings to examine everything from “cost per click” to Android and Google Glass adoption rates — and, of course, search — the overall consensus on Wall Street is for a positive post-earnings reaction.
For the record, Wall Street is expecting Google earnings of $6.23 per share, with revenue seen arriving at $15.89 billion. By comparison, GOOGL earned $6.24 per share on $15.6 billion in the same quarter last year. As noted above, cost per click will be a much-scrutinized factor for Google, as this key revenue metric has shown steady decline during recent quarters.
Despite the relatively flat raw numbers, analysts remain overwhelmingly bullish when it comes to Google stock. Specifically, all 36 analysts following GOOGL rate the stock a “buy” or better, according to data from Thomson/First Call. That said, there is room for a modicum of improvement from this bullish bunch, as the current 12-month price target of $665 represents a premium of only about 11% to GOOGL’s close at $594.26 yesterday.
Options traders aren’t quite as enthusiastic, however. In the July and August series, there are 40,104 open call contracts, compared to 36,622 open put contracts. The result is a middling put/call open interest ratio of 0.91 for the front two months of options. Given that calls are typically more popular ahead of an earnings event, this options activity hints at caution among short-term traders heading into Google earnings.
Taking a closer look at GOOGL options, we find that peak call open interest totals 3,138 contracts at the out-of-the-money weekly July $600 strike. On the put side, peak open interest rests at the out-of-the-money weekly July $580 strike, totaling 2,082 contracts. Keep in mind that these July options expire at the end of this week, making any new activity today highly speculative in nature.
Click to Enlarge Overall, July options implieds are pricing in a post-earnings move of about 4%. As a result, the upper bound lies at $619.82, while the lower bound rests near $570.18.
Overlaying this with GOOG’s technical chart places the potential bottom near technical support in the $570 region, with additional room for decline to GOOGL’s 50-day moving average near $560. Meanwhile, a move above $619 sends GOOG to fresh all-time high territory.
GOOGL Bull Call Spread: For those options traders looking to side with the bulls ahead of Google earnings, an August $595/$610 bull call spread has a very good shot at hitting a maximum return. At last check, the spread was offered at $6.13, or $613 per pair of contracts. Breakeven rests at $601.13, while a maximum profit of $8.87 is possible if GOOGL closes at or above $610 when August options expire.
Selling GOOGL Puts: Looking for an alternative way to play GOOGL ahead of earnings? If you are bullish on the stock, but not sure its going to take off fast enough for a call spread to realize a profit, an August $550 put sell might be a safe bet of capitalizing on the stock’s staying power and technical support. At last check, the August $550 put was last bit at $4.25, or $425 per contract. The upside to this put sell strategy is that you keep the premium as long as GOOGL closes above $550 when August options expire. The downside is that should GOOGL trade below $550 when August options expire, you could be assigned 100 shares for each Aug $550 put sold at a cost of $550 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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