Alphabet Inc (NASDAQ:GOOGL) is in a tight spot. GOOGL stock has struggled in the wake of a poorly received quarterly earnings report, and Alphabet as a whole is battling an increasingly volatile public relations situation. It’s certainly not a bullish incident.
If you haven’t heard, an Alphabet engineer recently shared a 3,000-word document that stated all Google diversity programs are “highly politicized.” The employee added that diversity work “alienates non-progressives,” and that biological differences “explain why we don’t see equal representation of women in tech and leadership.”
Alphabet responded today by reportedly firing the employee responsible for the document. In fact, CEO Sundar Pichai cut his family vacation short to return address the issues raised. Pichai also said that, “To suggest a group of our colleagues have traits that make them less biologically suited to that work is offensive and not OK.”
This issue won’t go away anytime soon, and with GOOGL stock struggling to make headway, it’s a distraction Alphabet investors didn’t need.
Click to Enlarge Technically, GOOGL stock has just come off a double-top rejection in the $1,000 region. The shares have also breached nearly all of their short-term moving averages, including their 50-day trendline — a level often seen as a buy/sell signal for technical traders.
Alphabet is now trading below former support at $950, and if selling pressure increases, the shares could be poised to test support in the $920 area — home to its July lows.
On the sentiment side, GOOGL stock remains a heavily bullish favorite. According to data from Thomson/First Call, 37 of the 43 analysts following GOOGL rate the shares a “buy” or better. Furthermore, the 12-month price target rests at a lofty perch of $1,078.42. Any downgrades or price-target cuts could add to recent selling pressure.
Elsewhere, while short interest accounts for a negligible 0.5% of GOOGL stock’s total float, it is worth noting that short interest jumped by 14% during the most recent reporting period. With so little of GOOGL’s float sold short, there is ample room for this figure to grow, which could increase selling pressure on the shares.
Turning to the options pits, even speculative traders are preparing for a decline. Currently, the September put/call open interest ratio for GOOGL stock rests at 1.02, with puts outnumbering calls among back-month options. Additionally, this ratio is on the rise, having advanced from the sub 0.90 region in just the past two weeks.
Overall, September implieds are pricing in a potential move of about 4% heading into next month’s expiration. This places the upper bound at $984 and the lower bound at $905.
2 Trades for GOOGL Stock
Put Spread: Alphabet has considerable downside risk on the technical front right now, and the PR situation isn’t helping matters. What’s more, August and September are historically bad months for investing returns, leading me to believe that shares are in for more selling through the next several weeks.
Traders looking to bet on an extended pullback in GOOGL stock might want to consider a Sep $930/$940 bear put spread.
At last check, this spread was offered at $3.90, or $390 per pair of contracts. Breakeven lies at $936.10, while a maximum profit of $6.10, or $610 per pair of contracts, is possible if the stock closes at or below $930 when September options expire.
Put Sell: For those with a more neutral-to-bullish lean, a Sep $900 put has plenty of potential.
At last check, this put was bid at $5.35, or $535 per contract. The upside to this put sell strategy is that you keep the premium as long as GOOGL stock closes above $900 when these options expire. The downside is that should Alphabet trade below $900 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $900 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.