Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is offering a little something for both bears and bulls on the price chart. But if you’re a trader that positions long and short, a combined spread strategy on GOOGL stock can allow for a creative way to satisfy those urges all at the same time. Let me explain.
It has been a bit over a month since search giant and diversified technology play GOOGL stock enjoyed the collective support of Wall Street. Alphabet shares surged to fresh all-time-highs following a better-than-expected earnings report. But subsequent zigs and zags on the price chart have ultimately led shares right back to where they started in front of the Q2 release.
It begs the question of whether investors overreacted or whether now is an opportune moment for bullish investors to enter GOOGL stock?
As the price chart attests, since forming an earnings-related upside gap, GOOGL stock has put together a bit of something for bulls and bears.
For the former camp of optimists, Alphabet shares are squarely back at pre-reaction levels. The discount is also technically attractive as an early 2018 high which has already acted as support is in play.
Bears, on the other hand, have a series of higher lows in GOOGL stock to back their position. As well, a stochastics set-up looks weaker than not of late and more supportive of lower prices to come.
My take is to be cautious right now. And if push came to shove, I’d side with the bears at the moment. With GOOGL in a third test of support already and diverging from the most durable bull market in modern times, I’m hesitant to see the current situation as the charm for investors looking to go long.
Alphabet Stock Options Strategy
In the event I’m wrong and GOOGL stock’s next decent-size move is up rather than lower, the options market can help limit losses and even profit in ways not altogether possible with owning shares.
After reviewing Alphabet’s options, one spread combination which can assist traders towards this end is pairing up a couple contrasting butterflies. Specifically, with GOOGL stock near $1211 buying a modified Nov $1,185/ $1,135/$1,035 put butterfly and purchasing the modified Nov $1,290/$1,345/$1,385 call butterfly for a debit of $8 or better is interesting.
If GOOGL drops in price, this trader is in position to profit at expiration if shares are in-between $1,177 and $1,093. The max profit capture is $47 at $1,135 on expiration. The combination does have downside exposure of around 5% below $1,035. However, the paper loss is well-removed from current prices and where today’s bears might consider changing their stance.
On the upside, if GOOGL stock rallies, this trader has a lower-risk, above-market call butterfly to profit from. The position begins to profit on an expiration basis just above the recent highs if shares penetrate $1,298. At $1,345 a gain of $42 is possible and unlike a regular butterfly, this non-symmetrical version maintains a profit of $7 above $1,385.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
