Call Options Or Put Options On Google (GOOG)?
Google (GOOG) shares are on the move today. The world’s largest internet search engine is making waves after third quarter earnings were released after close yesterday.
GOOG shares are trading at $980.45, up a whopping 10.3% today. The stock’s up 54% from the 52-week low of $636.00 and is currently 6% higher than the previous 52-week high of $928.00.
Is this an opportunity to buy call options on GOOG due to the company’s better than expected third quarter results? Or should you buy put options on GOOG because advertisers’ cost-per-click is still on the decline?
The bulls make a convincing argument…
GOOG surprised investors by posting much better than expected third quarter earnings. The company seems to have been able to position itself to take advantage of growing Internet usage on mobile devices.
In fact, Google posted a 23% increase in revenues related to its interest business. The revenues gains were driven by a 26% increase in total amount of paid clicks.
Moreover, GOOG’s adjusted net income came in at $10.74 per share. That’s well above the $10.34 analysts expected. It’s hard to argue with revenues and profits both above expectations.
But the bears have a compelling case as well…
Despite higher revenues, GOOG is still dealing with eroding cost-per-click (what the advertisers pay). In the third quarter, average cost-per-click dropped another 8%.
GOOG was only able to increase revenues due to a higher number of total clicks. But, that kind of volume may not be sustainable – especially if cost-per-click keeps declining.
What’s more, the company’s purchase of Motorola continues to be a drag on earnings. Motorola’s operating losses were $248 million this quarter, up from $192 million a year ago.
So is GOOG’s better than expected third quarter a reason to bet on the stock going higher, or are investors going to be disappointed with the company’s declining cost-per-click?
If you think the bulls are right, take a look at buying the GOOG November $1,050 calls for around $2.00.
If you think the bears are right, take a look at buying the GOOG November $900 puts for around $1.75.
Yours in Profit,
Gordon Lewis
Category: Call Or Put Options?
