Shares of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) finally had a long-awaited bounce following a post-earnings selloff. GOOGL stock had been hit hard following a solid earnings report as investors elected to focus on the spending plans versus the fundamentals. To me, fundamentals ultimately do matter and I look for Alphabet to head higher over the coming weeks.
The earnings report was a beat on both the top and bottom line. EPS came in at $9.93, crushing expectations of $9.28. Revenues were also strong at $31.15 billion, which exceeded consensus of $30.29.
So why the drop in GOOGL stock? Traffic acquisition costs were the freak-out factor, rising to $6.3 billion.
It is important to remember that even with those higher costs Alphabet delivered blowout numbers. I like the combination of lower stock prices and better earnings — makes for a much lower P/E.
Click to Enlarge Alphabet stock is trading just above major long-term support at the $1,000 level. The fact that the support level is such a big, round number only adds to the importance. GOOGL also briefly broke the critical 200-day moving average before rebounding to close back above it. This reversal is a decidedly bullish sign, especially near a major support area.
MACD also remains on a buy signal, even after the drop.
In my previous post on GOOGL from March 14, I was decidedly non-bullish with the stock trading at the $1,140 level, recommending a call credit spread. Now that GOOGL has fallen towards the $1,000 area, my opinion has changed to a more bullish one — because price does matter.
GOOGL options are trading at the 49th percentile of implied volatility, meaning option prices are neither comparatively cheap or expensive. This favors spread strategies when constructing trades. So to position for support to hold in GOOGL stock, a bullish put credit spread makes sense.
GOOGL Stock Trade Idea
Buy GOOGL June $965 puts and sell GOOGL June $970 puts for an 80-cent net credit.
Maximum gain on the trade is $80 per spread with maximum risk of $420. Return on risk is 19.05%. The short $970 put strike is well below the $1,000 support level and provides a 7% downside cushion to the $1043.31 closing price of GOOGL stock.
Tim may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his option-based strategies can go to https://marketfy.com/item/options-and-volatility.
