Google Earnings Trade – Now What to Do
- Posted by Greg Harmon
- on April 19th, 2013
Below are the trade ideas given pre earnings:
One more for tonight, Google, $GOOG reports after the bell.
Google, $GOOG, has been pulling back towards the rising 100 day Simple Moving Average (SMA) since peaking at 844 short of the Potential Reversal Zone (PRZ) of a AB=CD at 847.50, but close enough. A similar 61.8% retracement of the move higher would bring it back just below the 200 day SMA to 713.80. The Relative Strength Index (RSI) is bearish and falling with a Moving Average Convergence Divergence (MACD) indicator that is also moving lower. A downside bias. Support lower comes at 745 and 740 followed by 730 and 695. Resistance higher is found at 795, 818 and 844 with free air above that. The reaction to the last 6 earnings reports has been a move of about 6.07% on average or $48 making for an expected range of 720 to 816. The at-the money April Straddles suggest a smaller $37 move by Expiry with Implied Volatility at 105% well above the May at 44%.
Trade Idea 1: Buy the April 26 weekly 750/730/710 Put Butterfly for $3.00.
Trade Idea 2: Sell the May 720/710 Put Spread for a $1.50 credit.
Trade Idea 3: Buy the April 750/735-730 1×2 split strike Put Spread for $0.40.
Below 730 you will own the stock with a 715 basis
I like #1 and 2 together or #3. Remember this name has has the new 10 share mini options if an extra $70k in exposure is too much for your portfolio.
They reported the stock popped and then fell back to the days low. When the call started it popped again. In the morning it fell back a bit. But you have options now right? So what do you do? For all of these trades the short term volatility will fall off tomorrow. This will drop the price of the options and more so on the shorter options than the longer options. I have no idea what will actually happen with the stock price today but here are some specific thoughts on how to react now based on the action since the report:
1. First split the Butterfly into a long Put Spread and a Short Put Spread. Sell the long on weakness and the buy the short on strength in the stock. If the whole butterfly gives a profit then take it.
2. Look to buy back the Put Spread over time on any break of 7.38, else let it expire or buy back when less than 35 cents.
3. Split this into a 750/735 Put Spread and let the 730 expire. Sell the spread on weakness in the stock for a profit, on a bounce sell only the 750 Put for what you can get.
P.S. you might end up throwing away these plans in the fist 30 seconds. Be flexible
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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