Google Earnings Plays – Public

Google reports earnings after the market closes Thursday. As it heads into earnings it has risen back into the ‘No Man’s Land’ between 546.50 and 555.00 as shown on the daily chart below. This has been resistance prior. But it is testing this resistance with a rising Relative Strength Index (RSI) and an increasing Moving Average Convergence Divergence (MACD) indicator on the daily chart,

both positive for more upside. It did print a doji candle yesterday, signalling indecision and is following it up with another today as I write this. There is resistance above at 570 followed by 580 and 593. Support comes lower at 525, followed by 520, 515 and 490. It is also holding up well in the current market. The weekly chart shows a consolidation in a range between 500 and 556, support at the 50% retracement of the move lower from 2007 highs and resistance at the 61.8%

retracement. There is also rising trend support since June 2010. The RSI on this timeframe has remained bullish after pulling back from the last move higher and the MACD is flat. This is biased to the upside but barely. The monthly chart is where the bullish bias is more pronounced. The RSI has never dipped below 50 since the rising above it on the move off of the 2008 lows. Also the rising trend within an ascending triangle is obvious below. All told the charts give it a slight upward bias.

Google regularly beats their earnings estimates and moves higher, often by over 5% after reporting. The weekly options are pricing in a 6.55 move by Friday in the 550 and 555 straddles. This implies a move of $36 or a range of 518-590 with the stock currently at 554. The October 21 Expiry Straddle implies a move between 513-595 by next Friday. With the slight upward bias and the options board suggest an upside call spread, and selling well out of the money downside puts to fund it near free for earnings.

Trade Idea 1: Buy October 14 Expiry 570/580 Call Spread and sell October 21 500 Puts to finance it.

Buy the October 14 Expiry 570 Strike Call, offered for 11.90, and sell the October 14 Expiry 580 Strike Call bid at 8.20, selling the October 21 Expiry 500 Strike Put, bid at 3.50, for a net debit of 20 cents. The options are wide so you may able to get it for free. On an earnings beat and move higher close the Call Spread in the morning and buy back the short Put. Maximum potential gain is $10. This trade is protected to a move lower to 500, where if it closes there October 21, you will own the stock.

Trade Idea 2: Sell the October 14 Expiry 490 Strike Put for 1.00

This trade give you protection down to a closing price of 489 on Friday, $29 lower than the option implied move. If it closes above 490, you keep the $1 as the maximum gain.

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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