Thinking about trading Google next week when they report earnings on Monday? Here’s how I’m set up. (July 20, 2018)
GOOGL
I want to talk about Google ( NASDAQ: GOOGL) and here’s why: This is from an options perspective. The stock closed around $1200.00 today; they report earnings after the bell. If you look at the implied move on the August contract, that is the standard options contract. The Options Market is implying that the stock can move $75.00; it can move $75.00 in either direction.
Now, a lot of times, in fact just about every time, the market implies a bigger move, they kind of exaggerate things a little bit. And so what I am doing is, I am taking advantage of the implied move. Stocks like Facebook ( NASDAQ: FB ) and Google ( NASDAQ: GOOGL), and Amazon ( NASDAQ: AMZN ), the big FANG stocks, the implied volatility actually isn’t THAT high, it just isn’t.
If you are going to do an option trade and sell premium you have to kind of do it in a little different way. The way I do it with 27.5 percent, with that as an implied volatility, that is not super, super high and so I will sell. Again, we are looking at a $75.00 implied move in either direction. I will sell the 1275.00 call and I will sell the 1125.00 put; $75.00 out of the money in either direction.
The stock will not go in both directions next week, It is going to either go up this way, in which case the put that I sold is very happy. Or, it is going to fall down this way, in which case the call that I sold is very happy. In other words, I am going to make a lot of money on one of these. And I am going to be losing a lot of money on the other one. That is just the way it goes.
But, the idea is that ultimately the stock is going to close somewhere in here, inside the square. I don’t know exactly where. It may gyrate around one way or another first thing on Tuesday but I don’t think that the stock is going to ultimately stay outside of this level, out there or down there. I think it is ultimately going to stay at right here is this box somewhere.
So rather than try to predict a direction, instead, I will try to predict a magnitude of the move. And I get a big help from the Option Market. I don’t think it is going to go more than $75.00 this way or $75.00 this way. And even if it does I think we are going to get a revergent to the mean and close somewhere in this area and I will make money on both positions. I just thought I would give you the heads-up on how I am trading Google ( NASDAQ: GOOGL) around earnings; I hope it works for you.
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