Earnings Preview: Google

by OptionPundit on July 18, 2012

Google (GOOG) is expected to post higher earnings and revenue when it reports its second-quarter results on Thursday July 19th after market close. This is surely going to be an interesting quarter as Google will post results combined with Motorola mobility. It will also be interesting to observe if Facebook (FB) did impact its business in any meaningful way.

WHAT TO EXPECT: Estimates vary depending upon which research house you consider. Using msn/money data, consensus estimate is $8.78 per share (+14.56% vs. Year ago) and $37.48 (+25.9% vs. YA) for the full year. During last 8 quarters, GOOG missed earnings 3 times. Since 2005, July announcement missed earnings 3 times. So chances of a beat or missed are mixed, at best.

Out of 32 analysts covering Google, 26 are rating as strong buy.

OPTIONS’ TAKE: During the past two months, implied volatility has rallied by 50% to 30% level. Part of the rise in IV can be attributed to stock price drop, still at 30% level it is in line with previous earning announcements. The IV skew between July and Aug options is almost 40-45%. While it may sound a lot of skew, it is similar to previous announcements.

Though option market is implying a $28+/- move post earning, July ATM ($575) straddle can be sold for $34.30.

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TECHNICAL TAKE: Here is the 5 year weekly price chart for Google-

Monthly Pivot support is at around $545; $550 is also a supporting trend-line. On the upside $593 is resistance pivot and $608 is the next fib resistance level. Unless the report is very dramatic on either side, it seems that 550-600 is a good range to play.

If however, 550 breaks, 530 seems a likely pause. On the upside 620-625 will be most likely secondry resistance areas.

HOW TO TRADE – There are several ways to trade google earnings. I have been trading Google earning for almost 20 quarters with reasonable amount of success. If you are an option trader, here are several ways on how you can trade google earnings with a good risk/reward ratio.

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WHY IT MATTERS: Google earning event is one of the events that can provide some exceptional gains in a very short period of time.

WATCHOUT: Keep in mind that earnings are always a 50/50 probability event and stocks can move in a much wider range than implied by either option market or forecast by charts. For you information, during the last quarter, Google hardly gapped and those straddle seller did collect some excpetional gains.

Trade carefully, Trade profitably, OP

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One Response to “Earnings Preview: Google”

  1. Kim says:

    Another way to play earnings is playing the IV spike by buying straddle/strangle few days before earnings and selling just before the announcement. We did it already twice this cycle, each time for 15% gain. Third trade is still open.

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