GOOGL Earnings Trades Recap

by CC July 29, 2016 10:45 am • Trade Updates

Yesterday we looked at Alphabet’s (GOOGL) earnings and I detailed 2 trade ideas into the earnings announcement. GOOGL is up about 4.5% this morning on a well received quarter:

Alphabet reported second-quarter earnings of $8.42 per share on revenue of $21.50 billion. Analysts’ expected Alphabet to report earnings of $8.04 per share on $20.76 billion, according to Thomson Reuters a consensus estimate.

With the stock 800, let’s check in on the two trade ideas as this was the perfect scenario for both. First, let’s look at the bullish defined risk trade. Here it was:

GOOGL ($764) Buy the Jul29th/ September 800 call calendar for 5.00

  • Sell 1 July29th 800 call at 6.50
  • Buy 1 September 800 call for 11.50

With the stock 800 this trade is worth about $15, so a triple from what was paid/risked. As far as trade management what comes next depends on whether the intention was to play for a move to the all time highs, or a breakout above. If the play was simply earnings this can be closed now for a nice profit. If the intention was to define risk and play for a possible breakout the Weekly 800 calls expiring today can be closed and rolled to September, creating a cheap vertical call spread. For instance, a roll where you buy the Weekly 800 calls and sell an upside strike in September for roughly the same price (like the Sept 840’s or 845’s) leaves a lot of potential upside profits and keeps the overall risk to about the original $5. Or you could be a little more aggressive on strike and try to reduce the premium risk to next to nothing, like by buying the Weekly 800 calls to close and selling the Sept 825’s. That roll can be done for a credit and basically establishes a call vertical for close to even money with the possibility of making up to $25 if the stock is at or above 825 on Sept expiration.

The second trade idea was a hedge against long stock. Here was that trade:

Hedge vs 100 shares of GOOGL (764) Buy July29th weekly 820 /720 Collar for $1.25

  • Sell to open 1 July 29th weekly 820 call at 2.75
  • Buy to open 1 July 29th weekly 720 put for 4.00

This was a super cheap way to hedge against disaster and hold onto the long with the only risk being that you could be called away on your shares above 820. But that was an outlier of a possibility so these strikes were well chosen in hindsight. Most likely this can be left to expire as you enjoy the profits on your stock for the rest of the day. For those that want to clean it up the 820’s can be closed for .10-.15 right now.

This was an example where knowing the implied move given by the options market and charting technicals was very helpful in establishing low cost option alternatives, as the stock moved about where we figured it would on the upside.