Wanna make some money on Google? Here’s how! (April 16, 2014)

by DAN Discussed in this article: Google Inc ( $GOOG )

I had planned on looking at Solar City; I mentioned the other day that this was actually a pretty good bounce and here a good buy point, it’s up 5 percent. I think this supports going to hold, so I think you’re going to get a nice run here into earnings which is on May 5th.

This is a dragonfly doji here; after a big decline you like to see these types of things where the trend is down, really down, Google ( NASDAQ:GOOG ) violently so, and really kind of a broadening wedge formation that typically does resolve to the upside by way of a higher low like we’re going to get tomorrow, and then a break out to the upside, so I think there’s a chance for a monster trade here to the long side. As I’m doing this now Google ( NASDAQ:GOOG ) is trading at 540.00, at one point it was trading in the 520’s after hours, which is why I think trading in after-hours is only for the stupid people, you don’t want to do that. Why, because nobody else does except stupid people. The stock moves wildly, and trust me, you have no idea what’s happening, do you really? You’re in there selling stock at 525.00 before everybody else sells, memo to you, you’re the last one selling, now they’re all buying.

The point is, this is a reliable low, so you can just buy the stock if you want to put your stop a little below there, put it higher, this is not coming back to see this price; I don’t care what you do Google ( NASDAQ:GOOG ) is not going to come back to test this low, I promise you that, it’s just not, that’s not the way stocks trade; not after a big reversal doji like this, a dragonfly doji, which reflects an intraday reversal, a close back near the top of daily range. This is a really meaningful pattern, much more so than this; sure it was an intraday reversal too, but the stock closed still in the lower half of the range, you not see these things very often.

Here, I guess you’ve got kind of a similar thing and work with that led to; but the decline wasn’t that steep, it was fairly orderly, but even this one worked; so now we’ve got this, where the stock goes from 610.00, down ultimately to about 520.00. That’s a ninety-point drop and most people trade this using options, I don’t buy a $610.00 stock, I buy call options or put options on it, most other people do too. Remember when it was trading for twice this, before the two-for-one split, that was options heaven baby. So anyway, the point is you can go ahead and buy this stock at the open, I think you’re going to make money.

If you’re an option trader, here’s what I’m going to be doing, I’m going to do a wimpy trade, the low here was 518.00, I’m going to be selling some 520.00 puts, I’ll do it in a spread so I don’t have to use a boatload of margin where I just sell naked puts, which is the equivalent obligating yourself to buy, however many contracts you have times a hundred, that many shares, so if you sell ten contracts it means your going to buy a thousand shares of Google ( NASDAQ:GOOG ) at $520.00. I don’t know about you but that’s a little above my pay grade, so I’ll go ahead and sell some 520.00 puts and then I’ll buy probably some 510.00 puts, and this is in May, the contract expires in 30 days so there’s going to be a lot of erosion of the time value of your options and since they’re out of the money, it’s all time baby so every day the dollar amount of your options that you sold erodes. We like that, because when we sell an option as opposed to buy it, we sell an option and then that option starts losing value, that’s known as a good thing.

So I’ll be looking to sell the May 520.00 puts, buy say the 510’s, maybe the 500’s, I don’t know, probably the 500’s just because I want to get more dough for my mo, and then in a couple days, into next week, I’ll probably close that position out, these are the types of trades that you can make on this volatility. I have a long call position by means of a long-term January bull call spread, the 550’s, I think I sold the 600’s, so that’ll be down tomorrow. So what I’ll do is, I will be buying back the $600.00 calls that I sold for a really, really nice profit. I will be more upside down on my long 550.00 calls, that’s a drag, but the 600’s that I sold are mitigating the damage to the 550’s contracts. So I’ve effectively lowered my cost basis by selling these, I’ve lowered my cost basis in the 550’s, which means that the drop in value of the 550’s between today and tomorrow, Thursday, is less, the loss is lessened because I hedged, this is just a pure hedge that’s all it is.

I’m kind of bummed because I was hoping the stock would stay down here at about 525.00 or so, because then the sale of these would be much more profitable; I knew this stock was going to snap back from 525.00, if you follow stocks dynamically you knew this stock was going to snap back, but the fact that it did it after-hours, again, I’m kind of bummed, it probably sounds weird that I would be bummed when a stock is moving in the direction that I wanted it to, but on these after hour moves what you’re really trading is the rubber band, that’s really what you’re trading; you want to be trading a rubber band that is stretched so tight that when the opening bell rings that thing snaps back big.

Well, it’s still going to be stretched kind of tight tomorrow if it opens up around 540.00, which is where it is right now, but not as tight as it would have been if it were 525.00. So tomorrow the trade is definitely to the long side, however you’re going to do it, whether you’re buying stock, whether you’re buying calls, whether you’re selling puts, whether you’re buying a spread; there’s a lot of different ways you can play it, but just know that trading after hours, and you can quote me on this, everybody else does, is stupid, it’s just dumb, don’t do it. I guarantee you that if you’ve been doing it you haven’t been making money; you’ll make the occasional buck here and there, but is it really worth it, I don’t think so.

So trade during the open hours, it’s when everybody else does, it’s a lot of fun, so do that but be long on Google ( NASDAQ:GOOG ) , take advantage of this, and learn to recognize these dragonfly doji’s. They have a real good description of what a dragonfly doji is over on StockCharts.com, it’s free, you can check that out; they are a really good resource for a lot of trading definitions and stuff like that; and I don’t forget about Solar City ( NASDAQ:SCTY ), that’s working too.

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