After popping 7% following its last earnings report in early February, GOOGL traded sideways through the end of March. April has been another story, however, as the stock has gained 10% in just six trading days to hit an all-time high. Over the longer term, GOOGL has been a beast, having more than doubled off the March 2020 low. And why not, given its dominant position in the search and online advertising space.
The recent price action follows a pattern GOOGL has exhibited following recent earnings reports – a quick pop after earnings followed by a trading range or a slight drift higher. The company reports earnings on April 27, so a repeat of recent history bodes well for the stock’s intermediate-term outlook.
If you agree that GOOGL will continue its uptrend through earnings on April 27, consider the following trade that relies on the stock remaining above $2200 through expiration in six weeks.
Buy to Open GOOGL 21May21 2190 Put (GOOGL210521P2190)
Sell to Open GOOGL 21May21 2200 Put (GOOGL210521P2200) for a credit of $3.50 (selling a vertical)
This credit is $0.10 less than the mid-point of the option spread when GOOGL was trading at $2270. Unless the stock rallies quickly from here, you should be able to get close to this amount.
Your commission on this trade will be only $1.30 per spread. Each spread would then yield $348.70. This trade reduces your buying power by $1000 and makes your net investment $651.30 ($1000 – $348.70). If GOOGL closes above $2200 on May 21, both options will expire worthless and your return on the spread would be 54% ($348.70 / $651.30).
As with all investments, you should only make option trades with money that you can truly afford to lose.