Google Earnings Trade Ideas

• Posted by Greg Harmon
• on July 16th, 2015

These trade ideas were given to Premium Members at 12:30. This are now unlocked for all.

Google, $GOOGL, in many ways has been stuck in a consolidation pattern for over 18 months. A very wide consolidation. the chart below shows the jump up over 500 in October 2013 and a run to a new high at 615 in early 2014. Since then a series of lower highs along falling trend support has capped the upside while the downside has held over 500. A tightening consolidation, albeit very slowly.

That price action has created a descending triangle. With the price breaking the top of the pattern into earnings, a break and hold higher would target a move to 705. And the momentum is behind a move higher. The RSI is rising and moving into overbought territory, while the MACD is rising and making a new 4 month high. The Bollinger Bands® have also expanded to allow for the move higher.

On the glass half empty side of the ledger the price action over the last 4 days has been very fast to rise. The gaps as it moves higher, with smaller volume and a smaller candle body each day and upper shadow suggest some buying exhaustion. And it is now far extended from the SMA’s.

There is support lower at 581 and 567.75 followed by 564 and 555 before 540. After that 530 and 520 come into play with the bottom of the channel at 500 below that. Resistance to the upside may occur at the round number 600 or 606 followed by 614. There is no resistance after that.

The stock has moved an average of 5.40% following the last 6 earnings reports, or about $33 at the current price. This makes for an expected range of 567 to 630 following the report in tomorrows trading. The July options chain shows the at the money Straddles that expire tomorrow priced at just over $22 though, anticipating a much smaller move. Implied Volatility (IV) is high at about 73% for this week options while the August IV is only 22.5%, so look for the IV on the weekly options to fall off fast after the open tomorrow. Open interest is very large for tomorrow at the 600 call strike.

Google, $GOOGL

Trade Idea 1: Buy the July 600/612.5 1×2 Call Spread for free.
This covers the upside of the expected range from the options.

Trade Idea 2: Buy the July 590/580 1×2 Put Spread for free.
This covers the upside of the expected range from the options.

Trade Idea 3: Sell the July 600 Straddle for a $22 credit.
Profitable from 578 to 622 at the close tomorrow.

Trade Idea 4: Buy the July 590/610 Strangle ($14) and sell the July 570/630 Strangle ($4 credit) for $10.

I prefer #4 the best.

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