Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) stock price may appear extended as it hovers near its all-time high. In addition, the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) is also near all-time highs. This makes for a potentially precarious perch for leader stocks.
But GOOGL stock has no apparent reason to worry. Its stock is only in the middle of a 12-month ascending range in prices. So as long as markets don’t suffer a severe setback, Alphabet should stay on track.
Fundamentally, Alphabet management is a proven winner. Over the past few years, they addressed most of their critics’ sticking points. Now the company is a money-printing machine, with several more sources of income soon to come. GOOGL owns several properties with over a billion users each that are yet to be monetized.
Click to Enlarge Alphabet also has interesting forays into the auto industry, specifically in the self-driving arena. They are also likely to be significant participants in the cloud businesses. Netflix, Inc. (NASDAQ:NFLX) should fear not only Amazon.com, Inc. (NASDAQ:AMZN) but GOOGL too. They are both likely to inflict damage to the NFLX profit and loss statement.
Technically, although the stock in on an upward trajectory, it doesn’t mean that GOOGL isn’t open to potential drops. But investors would likely use them as entry points.
Today I will use the options markets to create income from selling into a range inside which GOOGL stock is likely to stay.
GOOGL Stock Trade Idea
The Bet: Sell the GOOGL Sep $750/$740 credit put spread. This is a bullish trade for which I collect $1.80 per contract to open or better. The price buffer from current levels gives this trade a 90% theoretical chance of success to yield about 20% on money risked.
I usually like to balance my trade. In this case I will sell opposing risk to hedge my bet.
The Hedge (Optional): Sell GOOGL Sep $990/$1,000 credit call spread. This is a bearish trade for which I collect 70 cents per contract to open. To win I need GOOGL to stay below my sold risk. This side alone has a 90% theoretical chance of success to yield 13% on risk.
Taking both trades would constitute a sold iron condor for which I collect $2.50 per contract to open. The overall position reduces my risk since I can only lose on one side or the other. If GOOGL stock stays between my spreads this trade would yield 33% on money risked.
I am not required to hold my trades open through expiration. I can close either side for partial gains or losses at any time.
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.
