GOOG - Earnings Trade; Pick a Strike

Discussion in 'Options' started by livevol_ophir, Oct 13, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    GOOG is trading $545.90, up 0.8% with IV30™ down 2.2%. The <a href="">LIVEVOL™ Pro Summary</a> is <a href="">in the article</a>.

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    GOOG reports earnings tomorrow AMC, so let's take a look at this devilishly tantalizing trading opportunity - which can also rip your face off.

    Let's start with some Earnings results history with respect to one day straddles. I have included the stats for the last eight quarters (<a href="">in the article</a>).

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    <b>What We're Lookin' At:</b>
    The result of a simple trade: Sell the ATM straddle the day before earnings, and buy it back the day after. The last two earnings cycles GOOG has smashed short straddle holders if they were ATM. Before that, 6/6 quarters were winners to the front spread. Hmm...

    Let's look at stock price movement as well. I have included the one day stock price movements (<a href="">in the article</a>).

    We can see that it's a mixed bag, 4 days up, 4 days down. But... there is one pattern... Do you see it?...

    $0.39, $0.14, $0.01, $0.15, $0.25... What are those numbers?... That's the distance the stock price closed from a strike price. Yup, GOOG tends to pin when earnings are on expo. That phenomenon makes it a very interesting trade. Just guess the right strike, and you're a huge winner.

    Let's look to the Options tab (<a href="">in the article</a>).

    <b>Possible Trades to Analyze</b>
    For all you naked straddle buyers or sellers, I commend your risk tolerance... Go away... lol... I want to pick a strike and do a butterfly. Here are some examples:

    1. Slightly Bearish: $540
    Buy 1 Oct 530 put for $5.10
    Sell 2 Oct 540 puts @ $8.70
    Buy 1 Oct 550 put for $13.60
    Pay $1.30 to try to win $8.70, or 6.69:1 MaxGain:MaxLoss payout.

    2. Slightly Bullish: $550
    Do the 540/550/560 butterfly in the calls. Pay $1.50 to win $8.50 or a 5.67:1 MaxGain:MaxLoss. Note the worse payout for a bullish outcome.

    3. More Bullish: $560
    Do the 550/560/570 butterfly.
    Pay $1.50, 5.67:1

    4. More Bearish: $530
    Do the 520/530/540 butterfly.
    Pay $1.40, 6.14:1

    You get the idea... Of course stock can move WAY outside those ranges, and the further out you go, the better the payout if you're right. Also keep in mind, you can do $20 wide butterflies which give larger profit zones, but lower MaxGain:MaxLoss payouts.

    This is a spec play, naked options (long or short) is very risky. Another note on the risk. If this thing pins again, DO NOT assume the options will work their way out if it's your short strike. Close for the small premium at the close, do not be naked short options and "hope" people do (or don't) exercise, this is a $600 stock. Each 100 shares is $60,000.

    Final note. GOOG has a tendency to move on the day before earnings as well. If you're a gambler and like a butterfly,<b> you can wait until near the close of tomorrow, to put on the trade.</b>

    This is trade analysis, not a recommendation.

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  2. So what are you saying? naked short the atm straddle or do a guess-a-strike fly going into google earning?

    If we are throwing darts, i would pick short 570/580 oct15 vertical instead.
  3. willem


    Wow - an 8 std dev move after hours. Even when you get the volatility collapse tomorrow, you're probably dead if you sold naked calls today. :eek:
  4. heh you are dead if you sold anything on the plus side...

    aapl on deck
  5. More fun just to go to the racetrack then play this nonsense. Unless you HAVE an opinion, that isn't just a guess.

    I imagine someone who had their wits about them could have cut any losses by buying GOOG shares when they beat, were plenty for sale at 550-560
  6. livevol_ophir

    livevol_ophir ET Sponsor

    GOOG earnings bet in options for one day are the racetrack, agreed.