Strong surge two weeks before E/R with a $50 pull back and now holding high $620's..That GAP up to $655 had to be filled and it looks like its on its way to be....
If you want to monkey with the weeklies, be my guest but with a large movement coming next week MM is not letting cheap options get cashed in...
Doing the normal routine...Long into earnings,,,in the event of a miss always more downside the next day without the huge options premium....
What you suggest is interesting, and if it gets back to $645 then it could happen. But if it stays where it is now, then I would scale down to the $660's...
So if I get your drift, about a 1.85 debit based on Friday's numbers (actually .90 based on $680 but if you think its going to $645 then the trade would be 1.85 to put on with a $20 move upward).
So for $185, you're bettting that on Friday it touches $700 making the $680 worth about 2k and the rest of the calls worthless.
So $185 for 2K...If the move is that large it works out to be 10X for you which is outstanding.
As there has never been a gap up on January earnings, and because we are closer to resistance than support. I am not willing to bet on that kind of jump.
I prefer to stay closer to at the money calls, taking a smaller multiple of upside in exchange for not being wiped out on a less than 8% move
Rather than just buying calls, I may use the butterfly based on $645/685/720....Kind of the opposite of your strategy as I am betting that it won't go over $685 or if it does it won't hold on Friday. Would rather pay more with fewer contracts to be closer to the ATM calls then go way up the lader to be in the money
Lets see what Tues and Wed bring
if GOOG ends at 645 on the 19th-as I expect it to be- a 700$ target on the 20th is reasonable- the ATM straddle will be close to 50$- and during expirations prices tend to move closer to the Highest OI- and also it ends in a zero.I will wait till the 19th to add to my position-which is the 680/700/720 bFLY.
Goog typically takes out the previous high on earnings(it tends to fill the gap within a month of earnings!
I feel a 700$ price target with a 80 cent beat is reasonable!
here is how i would pick the BFLy.
Wait till jan 19th morning and check the ATM Straddle price( basically ccall and put at the money- it should be close to 50$ by then)- this will give you ameasure of the movement-in this case amovement of 50$. Goog will typically move $10 days either way after earnings!
(just from experience).
Then you take a look at the maximum open Interest- currently it is at 700( about 11000 contracts- that will act as the ceiling for the stock( remembernext day is expiration)
as long as you are correct about the range- for example if you guess it is going to be 690-710- then you put the 680-700-720 bfly on.
I expect goog to move closer to 640 by earnings- and this is their biggest quarter!I expect a 80 cent beat on the earnings
I've never done a butterfly spread with GOOG. Not a fan as it seems to imply limited movement around E/R which is unlikely. As I understand it, you would sell two calls at the money to finance the $660 call you mention and a deep in the money call.
Assume GOOG is at $630 pre earnings on Thursday and using the options premiums from Friday's close
Buy 1 $660 @ 490 (OTM Call)
Buy 1 $600 @ 3270 (deep itm call)
Sell 2 $630 @(3180)(write 2 at the money calls to finance trade)
Net Debit - $580
If GOOG makes a 6% plus move and opens at $670 Friday morning, you will cash in the $660 for about 1K, the $600 call for 7K and pay out about 8K on the calls you wrote so it would be a loss of about 1K
If GOOG touches $700, I think you have the same problem...The two calls you sold would cost you about 14k( ATM on Thursday $630-$700 = $7000 X 2) and the $660 would be worth 4k an the deep $600 itm call would be 10K so its a breakeven
Maybe I'm wrong but the butterly I think works best with a limited move. If GOOG opens at $630 (no movement which is unlikely) ,your $660 is gone, your deep ITM call is still worth about 3K and the calls you sold atm for $3180 deflate to about $600 once the earnings volatility is removed Friday morning. So in this case. So in this case, you end up with about $2,400 give or take (Your $600 call worth about 3K less the now worthless $660 that you paid $490 for).
I think with GOOG you just go long if your bullish about $15 out of the money. If it misses, leave some cash for the next day to buy daily puts as there will be more downside
Let me know if I missed something or mis understood the trade
I'm long, but why is Max strike price at $610 BELOW PPS? Now, while the spread has narrowed-PPS was $660-670 and Max was $595 and Max has moved to price(good sign) jumping first to $600 and now yesterday to $610.
Usually when the 50 crosses the 200 as it did in November its good for a 2-3 month run. I think earnings will be stellar, it will be more how the perceived future revenue stream is ie advertising. Google like Apple is the dominant gorilla in its space.