OptionPundit

Tag: GOOG

  • How to Play Google (GOOG) Earnings

    How to play Google (GOOG) earnings and how to benefit from Implied volatility crush post google earnings is on the minds on almost every option traders I have met or spoken to. But before I proceed further let me share that earnings are usually 50/50 at best i.e. in-spite of complete detailed research you may still end-up being wrong. The chances of win are 50%. If you go with that assumption and are willing to take increased risks for potential windfalls, Google (GOOG) Certainly offers great opportunities for option traders.

    I have been covering Google earnings for almost 4 years. I also provided 4 different option trading strategies on how to play google earnings. For additional reference, LiveVol has done has done an excellent job on explaining past earings and Google’s move post earnings. You may want to check that out as well.

    So let’s begin the current journey. Let’s first look at the IV skew; There is almost 40+% IV skew between Oct and Nov options most of which will narrow by tomorrow (Chart is from LiveVol.com). So a simple inclination will be to sell the expensive IV and buy the cheaper IVs. That’s a good conclusion except that is not without its own risk. Here are a couple of options that you might look into playing (Ref- GOOG last traded price was $543.3)

    1. Buy straight call or straight put. Based on recent past history you may conclude that Google (GOOG) tends to move say $20. So you may want to buy Straight Out of the Money (OOM) Oct 560 calls or 520 Puts. Last mid quote for 560 call was $5.00, and for 520 put, it was $3.00 either google needs to be above $565 or below $517 before you can make money if you purchased straight calls or puts. But here you are assuming a directional as well as movement risk.
    2. You may choose to buy a strangle i.e. Google (GOOG) Oct 560 call AND Oct 520 Put, thus costing $8.00 combined. In this case google needs to be above $568 or below $512 before you can make money. But at least you are not taking any directional risk.

    I personally wouldn’t want to take #1 and #2 options. If I were to choose, I might then choose even further OOM and that too as lottery ticket assuming 100% capital loss upfront.

    So How can one increase chances of success while still hoping for good yield from Google earnings move. Here are few more examples.

    • Sell Google (GOOG) ATM Oct 540 straddle i.e. Sell Oct 540 Call and Puts, as of the market close yesterday it was $22.65/spread i.e. you will receive $2,265 credit but need to keep about $11,000 for margins. This trade will make money if Google is in between $517.4 and $562.6. The maximum gains are equivalent to the credit you received and if GOOG is pinned at 540 on Friday. Expected yield is 2265/10,900= 21%; the risk is that you might lose all the margins if GOOG moves wildly beyond the break-even points.

    • Well you may think that you don’t like above risk reward, but you still think that Oct ATM is pricing the Google move appropriately and hence would like to keep the same break evens but with a better yield. So how about selling an Iron Condor say Google (GOOG) 560/570 Bear Call spread and 520/510 Bull Put Spread. This will generate $367 credit on a $633 margin thus yielding 58% gains assuming Google remains between 520 and 560. The Breakevens are $516.3 and $563.6. The max loss will be if google is below 510 or above 570. Certainly a better option than #1.

    • Still don’t like the yield but willing to trade-off risk for even better yield. Other ways to play is that you can choose 10 points Butterflies with the mid strike at 540, 530 or 550 depending upon your outlook. Butterflies offer fantastic yield but then Google has to settle within that zone. Here is an example of GOOG $570 Call Butterfly (You may check out past examples here).
      • Buy +1 GOOG Oct 560 call and
      • Sell -2 GOOG Oct 570 Call and
      • Buy +1 GOOG Oct 580 Call

    Google Oct 570 Butterfly

    This can be done for only $83. If GOOG is pinned at 570, this trade will yield $917 that’s almost 1,100% returns. This trade will still make money if google is in between ~561 and 579. The risk is, you will lose 100% of the capital if google is beyond these breakeven points.

    • A little more advance option will be to combine a butterfly with either straddle or Iron Condor. That will result in better gains assuming you are right-on for the ATM strike. But even if you are not then remaining Straddle or condor can still make money.
    • These are just some of the examples how Google earnings can be played. Others include Calendars, Double Diagonals, Backspreads and ratio spreads and many more.
    • If however, you are willing to spend time and make even more educated guess, then don’t forget to check out these articles

    If you are not an OPNewsletter member and would like to sign-up, pls click here to sign-up for the waitlist as OPNewsletter subscription is open via invitation only.

    Happy Googling and wish you all the best

    Disclaimer– This post is for information purpose only. Please do your due diligence before investing even a single dollar based on any of the contents on this site including this article.

  • What Exactly is Option Trading?

    A Fascinating Friday ! That’s how I can think about Market’s action on Friday. Option trading is not only about attending a seminar, do some paper trades, get some winning trades and the stage is set. It is also about constantly evolving your own trading style and continue to sharpen your saw. With this post I hope you pick up one or two important nuggets that might add value to your trading style, so pls just relax and continue to read.

    First a simple one VIX– I mentioned on April 15, that I was not convinced of rally when markets are overbought for 6 continuous weeks; and shared my bias for bearish stand via $VIX bullish spreads.  Those OPN Members who followed it generated about +28.5% returns for 2 days holding. It could have been done with straight calls, but I wanted to minimize risk exposure without compromising delta.

    The King of Earnings- Google (GOOG)
    It was once in 6 months (if not 3) type event i.e. earning announcement just before Option Expiration. Those who have been with OPNewsletter for past 3 years, or at least have been reading OptionPundit blog, know how much I love trading Google.

    To begin with, I shared 4 different types of trades that could have been done on Google. Nothing much has changed Feb’07. However, this time, for OPNewsletter members I used one of my high yield/low risk/technical/intuition based strategy, Double Butterfly. We opened Google 540/550/560 Put Butterfly and 600/610/620 Call butterfly; for roughly $1.40 to $1.70 price combined.

    Google opened at $568 thus panicking some members, as it means 100% “potential loss” on this speculative trade. Based on “what if” scenarios I shared before markets opened, few members could still get out of the trade in “style” for break even or minor gains/loss even though Google was still out of our profit zone.

    But guess what, Google was pinned at $550, those who held till close, yielding almost +588% gains!!!

    But that’s not the end of the story, I traded Google almost live (though not recommended to members). I kept on switching between Calls and puts, resulting into +46% gains (bearish), then +21% (Bullish), then +95% (bearish), then +54.6%, (Bullish) then -12% loss (Bullish). Those who were following the thread live and could trade speculative (though not intended), could have still converted $1 into $10 by the end of the day!

    Google again, 95% gains; again out, i need to see if it can hold $560, if not, next may be $557…i am sharing almost real time to share how quickly i am changing my opinions….pls note, at one time, i have only one direction either bearish or bullish..i am not mixing two..(i have already close the 550 puts (i further broke the Bull put spread into individual options leg and purchased the short 550 puts, and still kept the 540 puts)

    added later, by the time i finished my msg, google was already below $556 and those puts were already quadrupled.

    Here is the screenshot of key trades I mentioned above-

    Google Intraday Transactions

    We didn’t even touch on Google Stock pinning as otherwise it would have just too much of trading to handle for a single trading day. Here are some excellent reads for OPNewsletter members on how to successfully play stock pinning, especially on Google. I also run a separate experiment (income trading strategy) with Google for following set of conditions – 1) Expiration week, 2) Earnings in that week but before expiration day; the gains were +18% within a few days even though google moved significantly against the “market neutral” strategy, before the earning day. I shall share this in another post.

    Here is another example of ISRG–

    Another stock I am looking at is ISRG, I had expected it to move about $20-$25, but it hasn’t…I don’t know if it will if drops below $372…I didn’t share it yesterday (i mentioned my bias on twitter though– http://twitter.com/OptionPundit/status/12171040022 ) as the options are not very liquid.

    ISRG closed at $360.39!! I am not mentioning Goldman Sachs (GS).

    Now the key points, why am I sharing all this? Recall back in early 2008 I shared on key factors that contributed to a record year (till then) for OptionPundit. Here are some additional thoughts.

    The Formula for Long Term Success
    Speculative trades should only be done with what you can feel comfortable losing, I must add, losing 100%. This is not income trading which many OPNewsletter members trade with over $100,000 and anything x 0=0

    This is a high risk/high yield scenario. The formula of long term success is

    Long Term Success = (Profit $$ x Winning Trades) > (Loss $$ x Losing Trades)

    Don’t be stubborn with your opinion–
    One shouldn’t marry to a single opinion. Markets can humble anyone, anytime and it has demonstrated time and again. No one will always be right else there won’t be a trading market. Keep agility and flexibility as your competitive advantage. Remember, the end goal is not to be right rather it is to make money. I encourage OPNMembers to re-read the whole speculative thread (May 2010) how often I changed my opinion between bullish and bearish, the same day, often in less than 30mins.

    Trade with a plan and be nimble
    I didn’t send alerts for these Google trades for OPNewsletter Members, only demonstration. I don’t put stop loss on the screen as I don’t want it to be shown to brokers. I keep a mental stop loss and write it down and close it. Why am I sharing this? Because one may say, with “hindsight bias”, that there was no need to trade so much, you would have made a 1000% gains (10times) if you just held those 560 puts till expiration; I was not in for a 1000% gains, I was trading and time value was against me, and I was just following my trading plan.

    Option Trading is both Art and Math
    The twin butterfly we opened would have been a 100% loss if Google were to close above $560. But breaking the flies into vertical spread, then finally into singles achieved great result for even those who panicked and wanted to get out to collect “whatever” was left. Options are very versatile, so just don’t 100% loss. Create “what if” scenarios for if it goes up, goes down or move sideways. No one is much more in touch with your trades as you are and hence prepare in advance yourself and don’t just panic. Panic never helps, it about keeping the big picture mind and bringing that to trading world. Trading is equally tough like any other business, if not more.

    Here are some additional thoughts on how to become a more profitable trader.

    More trades to come. There are more companies announcing earnings in next few weeks so stay Tuned,

    Profitable trading, OP

  • This Market Requires Caution

    Dow Above 11,000 (.DJI), S&P500(.INX) above 1,200, Nasdaq-100 (.NDX) above 2000, Russell 2000 above 700; no resting just plain simple advance for the past 6wks that too when markets have been continuously in a overbought state; Buying interest was intense and demand was even stronger on the NASDAQ, which probably recorded 90% Up Volume of total Up/Down Volume, qualifying as 90% Up Day. Wow, what a rally! To me it seems more like panic buying that occurs before any pullback, but who knows; it’s been happening for long time. Remember the old adage “The market can remain irrational longer than you can remain solvent.” – John Maynard Keynes

    Certainly markets staged a strong rally after a dull period of past few days. Strong rallies (or pullbacks) are not good friends of income traders. For OPNewsletter (April’10), non-directional trading, we were already out else a huge chunk of profits would have been taken away by the markets yesterday.

    Did I learn any lessons from the 2007-08 meltdown? It is that “It’s my money and “to protect or not protect” is my responsibility“. Sounds new? Well we learn it time and again, but sadly, in the “hindsight”. I am becoming risk averse again but I also don’t want to fight with the tape. Thus we opened some VIX Bullish Call vertical positions yesterday. The assumption behind the VIX trade is that we are nearing a short term pullback. However, we also know that this pullback may not materialize and hence it is being treated as a speculative play.

    Google (GOOG) and Intuitive Surgical, Inc.(ISRG) are the two big names that will be announcing earnings after market close on Thursday. If you would like to play earning, here are 4 different types of trades that I opened on Google. Read on to benefit from those.

    Time to trade carefully again,

    Profitable Trading, OP

  • How to Play Google Earnings, Again?

    Google (GOOG) is announcing earnings today after market close. A $500+ stock and famous for it’s move post earnings, it is almost in every “speculators” list to play for the big event.

    I covered GOOG earnings extensively. If you are looking for a play based on detailed analysis based, check out the past trades here.  There were 4 different types of plays and all were the winners.

    So do you want to play again? what is your outlook on how much Google is going to move. If you expect Google to move more than $15-$20, you should not even read further.

    I think it may be range bound when it opens tomorrow. It may move $10-$15 but not very much. Of course I may be wrong and I had been wrong in the past. So what to do? I would like to reduce my risk and hence I am willing to spend a very small sum for my views and I am willing to lose all as there will not be not much time left for Oct expiration.

    Here is how I plan to trade this-

    Buy Oct 520 Put Butterfly and 540 Call Butterfly. This trade can be done for $230 (as of this writing). In order for this trade to make money, Google should be between $512.3 and $527.6; and between $532.26 and $547.7

    Goog Earnings Oct 2009
    Goog Earnings Oct 2009

    So if someone has a $10K portfolio, this will be 2.3% of capital. If you have a large cap portfolio, don’t invest more than a small fraction on it as you may lose 100% of the capital invested on this. Pls do your due diligence before you invest any single $$.  I am personally into this and many other variations for Google earnings.

    The GLD trade was closed for nice profits.

    All the best, Profitable Trading, OP

  • Google (GOOG)- A Bearish Play

    It was an intense sell-off day with down volume accounting for over 90%. All of the major indices have now broken and closed below their September 25th lows and their uptrends dating from the July 8th. Chicago PMI had already provided hints that things aren’t that rosy yet. But hey, who knows. This might be a short term pull back, to quench the bears’ thirst, before new advance resume. Whatever your outlook is, play it cautiously.

    Bearish Call on GOOG Oct 2009

    Usually not many traders want to play bearish trades on Google (GOOG) but sometime one has to take a chance. Based on current market behavior of Google , based on a very simple technical analysis, there was/is high probability that it was/is ready to be cooked for a bearish recipe. Albeit, that was two days ago when I shared “Speculative trade idea” to the OPNewsletter subscribers.

    I am bearish on GOOG (yes i know everyone else is drumming on a different beat)…I am in with a 500/510 BCS and 450/470/430 put butterfly (roughly about $2). If you do decide to play…play only if your risk capital is less than 1-2%..and something you can afford to lose…else just stay away and let’s see how the trade unfolds.

    Goog Risk Reward Oct 09The above trade will make money as long as Google stays below $501 by Oct expiration and a greater deal of money if Google were to retarce just by 5-7% or even midway to rising trend line support.  Attached is the Risk/reward curve of the combination trade. So here we are, as yesterday close, the trade is up +19.6%.

    We also have another bearish play (FXP) on China. Yes, now you may wonder why bearish play on China, here is why-

    Here is another speculative trade idea-
    This is linked to China’s 60th anniversary on Oct 1; this is a bearish trade (FXP). The Chinese markets have been on a roll for the whole of this year driven by stimulus spending, etc. I am not sure if this will continue or not post celebrations. If it doesn’t, the payouts could be big. If not, then we might just lose some of the option value.

    Choose whichever strike/expiration cycle suits your taste.

    I personally chose FXP Nov 9 calls which are up almost +100% since then. Even the underlying FXP is up +15%. Hong Kong is down almost 2.5% today, but we shall see how Shanghai behaves once markets re-open post holidays.

    These are two of 5 total trades (other ones are POT, MON and GLD) that were shared as part of the speculative trades/bonus alerts to the OPNewsletter subscribers.  For Oct’09 OPNewsletter, we are up +5% so far with 88% capital invested across 5 different income portfolios.

    If you would like to sign-up for the OPNewsletter, pls join the waitlist here.

    Profitable Trading, OP

  • OPNewsletter (Jul’09) +5.2% (Open)

    General Market Move Since opening of OPNewsletter Jul'09 portfolio
    General Market Move Since opening of OPNewsletter Jul'09 portfolio

    4th down week for the markets. It’s interesting to evaluate how underlyings have moved since we started our portfolios. X moved +1% to -23% and moved wildly. GDX moved from +3% to -11%, and all major market indices including S&P 500, DOW and Russell 2000 ended down, ranging from -5.5% to -6.5% (Ref point June 16th). On contrary, OPNewsletter, using 43.3% of capital is up +5.2% x-commissions.

    If you recall mid-June when we started our portfolios, the “green shoots” theory was gaining momentum (maybe still it is, but less so) and markets were making high. These pages on OptionPundit reflect my bearish bias. The problem with bear market is that you may know it is about to happen, but not sure of time. Hence we have to keep OPN portfolio to cater to upside moves as well. The strategy paid off.

    The above results don’t include returns on speculative trades of either VIX or RIMM, POT or Indonesia related Trades.

    I have been saying for sometime now Smiley I shall say it again-
    As I shared earlier, market internals are deteriorating day by day. I don’t know when will the tide turn upside down “big time”..I feel that March lows are about to be tested..if not all, then maybe a significant gains will since then might be reversed. If you have a long stock portfolio, you may want to erect defense lines while the IVs are lower and defense will be cheaper. For stocks, there is no harm in reducing the gains in order to protect and preserve capital. I’ll reinforce what I often say- Making money is not difficult, preserving it is.

    We shall soon be starting Aug portfolio. If you would like to join, pls click here.

    oNext week is an interesting one, as it has GOOG, IBM, HOG and some other great earnings’ play; option expiration is on Friday which sets it up for a highly leveraged opportunistic time. I may share some trade ideas via e-mail alerts to registered members. If you have not signed-up for free membership, you may want to join now.

    Profitable Trading, OP