The Nasdaq-100 is posting new highs, and it’s being led higher by companies like Alphabet Inc (NASDAQ:GOOGL). To most traders, though, it would seem like it’s too late to initiate a long position in GOOGL stock by purchasing shares at $870.
Luckily, you and I have the options markets.
With GOOGL options, we can design trades that allow for a margin of error. That would give us a lot more confidence going forward; otherwise, our stops would kick in on the first few red days.
Less than 30 days ago, I shared a trade that was designed to be a sure thing. Almost $4 per contract in profits came fast. Today, with those profits in my pocket, I want to “range trade” Alphabet stock instead. We could all use a little speculative risk in our portfolio.
The short story of Alphabet is that fundamentally it’s as solid as it gets. It’s the king of search, and that’s a cash cow that just keeps getting fatter. So with a trailing price-to-earnings ratio of 30, GOOGL’s potential is built in somewhat … but I think it’s not fully built in. I think what people are forgetting is that Alphabet can still monetize the billions of users on the Android OS much better than it already is.
Technically speaking, Alphabet stock is at all-time highs, but still has room to run. I’d just expect some resistance first.
For now, then, this is what we’ll do.
How to Trade GOOGL Stock
The bullish side: Sell the GOOGL 13 Apr $845/$842.5 credit put spread for 40 cents per contract. We have an 80% chance that price will stay above my strike where we need it.
The bearish side: Sell the GOOGL 13 Apr $887.5/$890 credit call spread for an additional 60 cents per contract. Here, given the upside potential in markets, our chances of success are around 75%.
Taking both trades would constitute a sold iron condor for a total $1 in credit. Since we can only lose on one side or the other, our max risk drops, thereby raising my potential yield above 60% on risk. This trade’s delta is much higher than my usual points of entry, and that’s what makes it a speculative setup in GOOGL stock.
In this market, I know we’ll need to tightly manage this iron condor. So we shouldn’t risk more money than we can afford to lose.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.