Google Earnings Preview

I have tracked Google’s options activity this whole week, to find out who’s winning this tug of war, bears or bulls.

Monday Chart:

Peaked around 945am chicago time.  Closed around the day lows @ 539.  Trade rance of 537-545.5 8.5pts. (1.57%)

Monday Options activity:

Volume for 10 closes strike prices:

call volume: 30,539

Put volume: 15,884

Call/Put Ratio: 1.922 (very bullish ratio)

Tuesday Chart:

peaks around 1105am chicago time @ 546. Lows around 2pm chicago time @ 548 closes on a nice 3pt run the last hour to get to 541.39 trade rance 538-546 8pt range (1.47% trade range)
Tuesday Options:

Volume for 10 closest strike prices:

Call volume: 27,727

Put volume: 15,012

Call/put ratio: 1.847 (very bullish)

Wednesday Chart:

Peaked @ 547 @10am chicago time and again @ 115pm chicago time.  Bottomed @ 543 @ 1015am and at the close finishes right at day low.  Trade range 542.5-547: 4.5pt trade range (very small .82%)

Wednesday Options:

Volume of 10 closest strike prices:

call volume: 27,721

put volume: 16,897

Call/Put ratio: 1.64

Conclusion and predictions:

Google’s earnings are released after the bell on Thursday.  A couple of things to note.

-The street has gotten less bullish on Google each day this week leading into the close

  • Monday Ratio 1.922
  • Tuesday Ratio 1.847
  • Wednesday Ratio 1.64

-Historically Google averages a 4-4.5% move in the overall stock price.  If this is average is correct for this google trade Then the stock is poised to trade somewhere between 520-570.

A couple of trading ideas for this google trade:

My prediction if earnings are good, which I believe they will be. I believe google could end up closing around 600.  There are a number of ways to play this move you can buy any of the out of the money upside calls.

strike price cost if hits 570 580 590 600
550 8.3 141% 261% 382% 502%
560 5 100% 300% 500% 700%
570 2.8 0% 257% 614% 971%
580 1.5 0% 0% 567% 1233%

The last 2 earnings releases for Google have been negative:

April 15th 2010 Close @595

April 16th 2010 Close @ 550

result -45pts or -7.5%

July 15th 2010 close: 494

July 16th 2010 close: 459

result -45pts or -9.1%

Jan. 21 2010 close: 582

Jan. 22 2010 close: 550

result -30pts or 5.4%

If the stock trades down this is what it would look like:

strike price cost 500 510 520
500 0.75 0% 0% 0%
510 1.5 567% 0% 0%
520 3 567% 233% 0%
530 5.7 426% 251% 75%
540 9.7 312% 209% 106%

There are ways to play both sides of this trade, since it seems like no one really knows where this stock is going to head post earnings.

You can trade a straddle:

the straddle is pricing in a move of $23.  So to break even on this trade you would need goog to hit either 565 or 520

Im looking at a 530/560 straddle:

buy 10 530 puts @ 3

buy 10 560 calls @ 5

this means my break even point is 522 and 568.  There is support @ 510 which is where I think it will end up if the stock goes down.  This will be a net profit of 12 units.  If the stock goes up there is resistance at 560 and 580.  I wouldn’t be surprised if it trades in this range all day on good earnings.

strike price cost if hits 570 580 590 600
550 8.3 141% 261% 382% 502%
560 5 100% 300% 500% 700%
570 2.8 0% 257% 614% 971%
580 1.5 0% 0% 567% 1233%
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