If you were betting bearish on Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) stock, the past couple of days have been a bit rough on your positions. And, unfortunately, there doesn’t appear to be any “good” news on the horizon for GOOGL bears either.
GOOGL stock went through a rough patch following a PR disaster back in early August. You might remember the Alphabet engineer who shared a politically charged 3,000-word document stating diversity work “alienates non-progressives,” and that biological differences “explain why we don’t see equal representation of women in tech and leadership.”
The situation was dealt with quickly, but the impact on sentiment lingered throughout August. With short-term GOOGL traders looking for a reason to sell, Alphabet stock hit multimonth lows near $920 at least three times during the month. If you got into last month’s Sept $930/$940 bear put spread, you had several chances to close out the trade for a maximum return of roughly 56%.
And while there are still about two weeks left on the Sept $900 put sell position, traders taking this option are well on their way to banking the full premium received upon opening the trade.
Click to Enlarge But technicals shifted sharply last week for GOOGL stock. The shares rebounded heading into the weekend, closing Friday above their 50-day moving average for the first time since late July. Repeated tests of support near $920 brought out bargain hunters, and reclaiming the 50-day trendline should add technical buyers to the fold.
Outside of the financial media headlines, which were centered on the ill-fated manifest, little has changed on the sentiment side for GOOGL stock. The shares remain a bullish favorite in the brokerage community, with Thomson/First Call reporting that 38 of the 43 analysts following GOOGL rate the shares a “buy” or better — up from 37 “buys” in early August.
The 12-month price target has also crept higher, rising from $1,078.42 in early August to $1,090.44 at last check. While there appears to be little room for additional upgrades or price target increases, any bullish commentary could add to GOOGL stock’s upside.
Turning to the options pits, pessimism evaporates when we look past September options. While the September put/call open interest ratio lingers near 1, the October ratio has fallen to 0.48, with calls more than doubling puts among back month options.
Overall, September implieds are pricing in a potential move of about 5% heading into next month’s expiration. This places the upper bound at $997 and the lower bound at $903.
2 Trades for GOOGL Stock
Call Spread: While the $1,000 mark may be a stretch at the moment, GOOGL stock has should make a believable run at this psychological target as Wall Street begins its run into the end of the year. For those looking to bet bullish on GOOGL, the Oct $970/$980 bull call spread offers a nice potential return, and is well within the expected move priced in by implieds.
At last check, this spread was offered at $2.46, or $246 per pair of contracts. Breakeven lies at $972.46, while a maximum profit of $7.54, or $754 per pair of contracts — a potential 206% return — is possible if GOOGL stock closes at or above $980 when October options expire.
Put Sell: Once again, for those with a more neutral-to-bullish lean, an Oct $900 put remains a solid option for banking on technical support. At last check, this put was bid at $7.01, or $701 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 GOOGL 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.
