Gaga for Google … er, Alphabet (GOOGL)

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.

GOOGL Chart April 2021

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.

Happy trading,

Terry