I am seeing two of the FANG stocks doing the same thing…so lets look at them together. Here’s my take on Amazon (AMZN) and Alphabet (GOOGL). (June 11, 2019)
GOOGL SPY QQQ SPY GOOGL AMZN
I want to look at a couple of the FANG stocks because of what we are seeing here. We are going to start with Google ( NASDAQ: GOOG ); the market is kind of in a heap of trouble here, it’s probably a little rich to say that. As long as I’m saying it, though, we’ll look at it.
We are kind of at what could be a lower high here if the S&P ( NYSEARCA: SPY ) continues lower. The Nasdaq ( NASDAQ: QQQ ) is the same thing, it got way oversold. And then now this rally is so, so, so big that right about now is when you have got the lowest common denominator of traders saying, “Wow, I better get in on this rally.” They are a week late and probably not thinking about shorting. And so it is really important to see where this is right now and then look at a couple of the big dogs like Google ( NASDAQ: GOOG ), for example.
The stock traded way down here. It gapped down and then lo and behold, what has it done since making this gap? Well, it has completely filled it. And so I am not looking for Google ( NASDAQ: GOOG ) to just drop down to below $1000.00, I have no idea, neither does anybody else. But the stock has been trading lower; lower highs, lower lows. And so if you just look at it in this way, just dispassionately without really having a bias one way or another, you have to say the next move is probably not going to be that. It might be this; it might be this but it is probably not going to be that either. So what are we going to do with this?
What I would suggest doing if you trade options, sell a bear call spread. Go ahead and sell some options, even say, just right above the 200-day moving average. Sell a1140.00 call and then go up and buy a1160.00 call and you will pull in about $4.00 on that; it’s a pretty high-risk deal for a fairly small credit, you are getting $4.00 and you are risking 20.00. If you want to, though, go for the gusto you do like a1120.00-1140.00 call spread, where you are dropping down a little bit closer to the price action here and you will probably get about $6.00 for that.
So if you are doing this kind of trade, trading this, what you are betting on is that Google ( NASDAQ: GOOG ), even if it does move up here, it is not going to move up so fast that you are not going to have time to adjust your position. And even if Google ( NASDAQ: GOOG ) just trades sideways, if it doesn’t fall down you will still make money because of the erosion of time.
And then a similar situation with Amazon ( NASDAQ: AMZN ). I am always more leery of Amazon ( NASDAQ: AMZN ) because they could be doing anything. But you could be doing the same type of thing with Amazon ( NASDAQ: AMZN ), where the stock traded up above here. I would say if the stock starts falling below the 50-day moving average I wouldn’t short the stock but I would probably make a bet that the stock is not going to get back above, certainly above 2000.00. So you could go ahead and make a bearish bet on that, a mildly bearish bet; where you are selling, say, the 1950.00, buying the 2000.00 call, that’s a really widespread but you are trading the chart, you get about $12.50 for that, maybe $13.00.
These are two ways that you can be trading two of the FANG stocks; where if they start moving up on you, you should have time to recover. But they are more likely to move either sideways or down, in which case the passage of time is going to be your biggest friend, which typically for me, I’m 61, I don’t really look at the passage of time as my friend but in selling options, I’ll do it.
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