We posted our detailed thoughts on GOOG in our earnings preview yesterday. GOOG stock has been flat for the past 5 months. This quarter has special importance given its big whiff on Q3 earnings in 2012.
We decided not to get involved in a trade ourselves ahead of earnings, but wanted to lay out a couple potential structures depending on your own view of the stock on the earnings release.
Both of these structures are net short volatility, since we do view GOOG as most likely range-bound after earnings ($928 is the all-time high, and $842 is the recent low), and hence would not want to net buy premium. Also, the implied move is around 4% based on the weekly straddle, so we’ve structured the trades accordingly.
1) For Protection against Long stock, Sell the GOOG ($893) Nov16th 925 Call, Buy Nov 880/850 Put Spread, Collect 1.00 Credit.
-Sell 1 Nov16th 925 Call at 10.30
-Buy 1 Nov16th 880 Put for 16.90
-Sell 1 Nov16th 850 Put at 7.60
2) For Leverage, Sell the GOOG ($893) Nov16th 850 Put, Buy Nov 910/930 Call Spread, Collect 1.00 Credit.
-Sell 1 Nov16th 850 Put at 7.60
-Buy 1 Nov16th 910 Call for 15.40
-Sell 1 Nov16th 930 Call at 8.80
Since GOOG has been stuck in this range for the past 5 months, we don’t think it makes sense to play for an outsized move in either direction from here. We are relatively neutral, but these are structures that are good risk/reward if you have a directional view. However, these are trades that DO have open-ended risk if you are not long stock vs. the protection trade (and the leverage trade is adding to your risk if you’re long stock), so you must be willing to take that risk if you put these trades on.