Here’s how that Google trade worked out.. (July 24, 2018)
GOOGL
I want to look at Google ( NASDAQ: GOOGL ) here. I have been talking about this recently and last night I had mentioned that Google ( NASDAQ: GOOGL ) was setting up to be a pretty good short so I want to show you how I traded it.
I had an iron condor on this trade, where I had sold the 1125.00 puts, bought the 1115.00 puts. Sold the 1275.00 calls, bought the 1285.00 calls so that I was covered either way. The whole idea was that the stock has to stay in between 1275.00 and 1125.00, right?
So this morning the stock gaps up; you will notice it tagged 1175.00, like literally right on the nose and then that is where some selling pressure came in. And so that trade, the bear call spread, was under water. But the bull put spread, which is way down here, way off the chart, was up a lot. But overall the trade was down slightly just because the stock was so close to this extreme and I expected that. I didn’t expect it to be profitable right off the bat because of the extreme move but I was small enough to where I just figure, well whatever happens, happens. Let’s see; we will wait and see what happens.
So the stock (let’s go to the 1-minute thing here), just in the first couple minutes moved up to that level and then it fell off. The orange line here is the value-weighted average price line. It took a while, it took a few minutes for that to get up here and form some kind of stabilization right around 1270.00. And then at that point I actually shorted some stock shortly after the open. You could say, “That’s kind of ballsy.” Not really, because I saw it come off of 1275.00, I knew what the Options Market was predicting; the Options Market was predicting a move up to 1270.00 I think, maybe 1275.00; it really kind of priced this in.
The stock was up even a little bit above that and that is a pretty good signal that maybe the stock is not going to go any further. And so my idea was, okay, I will short some shares and I will put a buy stop in right above 1275.00. So even though you might think it was really gutsy to be shorting a stock that was up so high, it really wasn’t because my risk was really small. I knew exactly where I would get out; and then I didn’t have to get out.
In fact, then after the stock came up here what I did was, I took off somewhere in here, I forget exactly when, OMM guys you know, I took off the bull put spread because you could buy it back like for 20 cents, so that was a complete victory. And then I added to the bear call spread. I sold more 1275.00 and bought more 1285.00 calls so that I could build up the position on the short side. And it was ALL contingent upon the stock NOT coming into this green box. So far so good. Now we have a bear call spread on Google ( NASDAQ: GOOGL ) and as long as the stock stays below this level that thing is going to do just fine. There, in August, which means that they expire in 24 days, I figure I will hold these into next week and then close them out for a pretty nice profit.
The moral of the story here is, when a stock gaps up, even though it is only 5 percent, it is $60.00. When a stock gaps up that much don’t buy it. You will be buying it, there will be plenty of people that are waiting to sell it to you but you are paying up for it. Now at this point you totally stay away from Google ( NASDAQ: GOOGL ). If I had to choose right now I would even short it here. I am not really sure how much money you stand to make if you short it here but I am looking for about 20 points from where it is right now.
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