Earnings Trade Ideas for Alphabet

• Posted by Greg Harmon
• on January 26th, 2017

Alphabet, $GOOGL, reports their quarterly earnings tonight after the market close. The stock had a fast run higher in June of 2016 and then stalled out for almost 6 months, consolidating. The sideways price action created a Diamond pattern and the stock broke above that last week. This gives a target of about 940 to the upside. That, of course does not have to be in a straight line, and often break outs are retested before a major move.

Ahead of earnings the stock is building a Dark Cloud Cover candlestick pattern. This would suggest a possible downside reversal. It has a RSI that is trending higher in the bullish zone, but pulling back from an overbought condition in the short run. The MACD is rising and bullish, not near extreme levels. There is support lower at 835 and 825 followed by 818 and 810, then 800 and 792 before 785. There is resistance at 860 and the n no further price history above.

The reaction to the last 6 earnings reports has been a move of about 6.03% on average or $52 making for an expected range of 800 to 905. The at-the money January 27 Expiry Straddles suggest a smaller $34 move by Expiry tomorrow with Implied Volatility at 86% above the February at 25%. Short interest is low under 1%. Open interest is biggest at 800 on the Put side, with some size at 810 and 820 but tailing above that. On the Call side it picks up at 820 and 830. But is biggest at 850 and above, with 870 the largest on both sides by a factor of 2.

Alphabet, $GOOGL

Trade Idea 1: Buy the January 27 Expiry 850/830 1×2 Put Spread for free.

Trade Idea 2: Buy the January 27 Expiry/February 870 Call Calendar ($5.20) and sell the January 27 Expiry 822.5 Put for free.

Trade Idea 3: Sell the January 27 Expiry 800/900 Strangle for a $4 credit.

#1 gives the downside using leverage and may put you in the stock at 810 if it closes under 830 tomorrow. #2 gives the upside looking for the large open interest at 870 to hold it tomorrow and may put you in the stock at 812.50 if it falls below there tomorrow. #3 is profitable on a close from 796 to 904 at Expiry. I like all three.

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