Google Options (GOOG): Unusual Trading Activity
Options in the multi-billion dollar social media company Google (GOOG) are showing heavy activity today.
However, this is to be expected as traders patiently await the news…
That’s right, Google reports first quarter earnings after the close of trading tomorrow.
So, how are option traders setting up for this event?
Traders consider this report important because they know it’s going to have a profound impact on the other big cap tech stocks due to report over the next few weeks.
Our tracking system calculates the premium built into the GOOG options is suggesting a $44 a share swing in either direction. That’s a 7% move for Google.
As I write, Google is trading at $630 a share. And option traders are starting to pile in again today.
You see, one trader yesterday initiated a $625-$640 call spread in GOOG. Obviously he thinks this stock’s moving higher.
Remember, a call spread is an option strategy where one call option is purchased and another option is sold at a higher strike price. This is done in order to reduce a trader’s option premium he has to pay, as well as to define a traders risk.
Meaning, with a spread, an option trader can’t lose more than the difference in the strikes minus what he paid for the position.
Knowing this, yesterday we saw one trader come in buying the April $625 call options and selling the $640 call options. He made this trade 1,200 times for $6.00 a share. This was a total cash outlay of $720,000.
Now, all this trader needs Google to do is trade above $640 a share before April expiration. If this occurs, he better have big pockets! He’ll not only put his initial $720,000 back into his pocket, he’ll also make an additional $1,080,000 profit.
So, after this trader’s initial trade yesterday afternoon, other option traders are jumping on the bandwagon. We’re also seeing the same trade being made again this morning.
As most of you know, Google is a technology company. It maintains Web sites and other online content for users, advertisers, and Google network members.
With Google providing so many services, option traders think this company is poised higher. Let’s not forget, before the infamous market crash that started in 2008, Google was trading at $740.
And it could easily see this price again soon.
In other words, right now GOOG is undervalued by most analysts. What’s even better, Google’s water faucet of cash is allowing them to focus on providing new and significant opportunities for growth.
Finally, Google’s rise in the smartphone market share through the Android platform is helping to extend their advantage in the mobile world.
I believe option traders who think Google is going higher are going to be rewarded very soon.
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Category: Unusual Options Trading Activity
