Earlier, Dan laid out some thoughts on Google’s (GOOGL) reorganization announcement (read here). We are surprised at the investors reaction because we feel this was the big bullet and it prevents the company from doing some other things intended to unlock shareholder value.
Here is our trade to fade the news:
We want to define our risk and play for a gap fill similar to what we saw following their Q2 earnings last month.
Trade: GOOGL ($700) Buy Sept 700 / 650 / 600 Put fly for $12
-Buy to open 1 Sept 700 Put for 21
-Sell to open 2 Sept 650 Puts at 5.50 each or 11 total
-Buy to open 1 Sept 600 Put for 2
Break-Even on Sept Expiration:
Profits: of up to 38 between 688 and 612, max gain of 38 at 650
Losses: of up to 12 between 600 and 612 & between 688 and 700 with max loss of 12 below 600 and above 700
Rationale: This targets a pullback in the shares similar to what we saw after earnings. Implied vol is slightly higher today and the fly alleviates some of the premium risk associated with an out of the money trade here.