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Gosh, just 5 days and $32 later and everyone wants another Google update! We made scads of money, the timing was perfect, and I took half off the table already. OK, fine -– more details...

We proposed several plays last weekend, taking advantage of Google’s low volatility from 5 weeks of uncharacteristically flat trading. We picked several classes of option plays based on risk tolerance on the hopes that Google would go back to it’s usual pattern of moving up or down $40 in a month, with a bias towards the positive based on my fundamental analysis of the stock.

By moving $30 in just one week, Google blew through our expectations and ran our options off the charts, returning some stunning one-week profits!

Here’s a review of the picks (from last Sunday) and a status report. Like I said, I don’t leave profits like this on the table, and I’m not going to chase it. Perhaps Monday we will reposition, so stay tuned!

The Safe(ish) Play:

A) Buy the stock for $378 and sell the outrageously expensive Oct $380s for $15.40. This reduces your basis to $363. You can roll the calls if the stock trades down, or take advantage of dips to buy-out the caller and resell as it moves up (this is what the big boys are doing to you!).

a. This is what you get for playing it safe -- makes you cry doesn’t it? We’re up $2 if we get called away, plus we pocketed the $15.40 for a $17.50 gain on $363 invested for a 5% one-month gain. This is good safe money and you can let it go or roll it.
b. The way to roll it is to take out your caller for $37.40, and sell the Dec $370 (yes lower) for $54.10, reducing your basis to $346 and hoping for a pullback.

B) Play for the comeback of volatility ($40) by taking a spread of the Oct $420s for $2.95 and the Oct $340 puts for $3.50.

a. Again, dull but effective: The $420s shot up to $12.20 (up 315%), and the $340 puts are down to $1.25, which at this point I would hold for a pullback, or just let go. Earlier in the week we called for selling the puts and most of the calls to let the profits ride, still a good plan.

i. In comments we mentioned weighting these positions 3:2 bullish.

Middle Play:

A) Assume they will have trouble breaking $400 and take the December $400s for $16 and sell the October $410s for $4.70. Again you can roll, or buy out on dips.

a. The Dec $400s have shot up to $33.60, and the Oct $410s are $17.10, so you have net profit of $5.20 on an $11.30 investment (46%).

B) Take the December $410s for $12.60 and cover with the Oct $350 puts for $5.30 or the Sept $370 puts for $2.90 and roll into October if you have to.

a. The $410s are $28.10 (up 125%), and the $350 puts are $1.80 (-3.50) for a net profit of 63%. The Sept $370 puts were wiped out, but the sudden increase made them the cheaper, winning play.

C) Split the December $420s for $9.70 with the Dec $350 puts at $11. You have 3 months in which a $40 move either way will put you in the money...

a. In a play like this, if I go in the money early, I like to reduce my holdings so I have just the profits remaining, so either way I win.
b. The $420s hit $23.10 (up $13.40), while the $350 puts dropped to $5.70, for a net profit of $8.10 (40%).

GOOG 5-day Hourly Chart
Riskier:
I think Google may break any day, especially if we have a strong market next week, so I’m going to make a short-term play, even though I am likely to lose both ends of this bet:

A) Take the September $390s for $.95 and the Oct $410s for $4.70 with the hope of selling the Septembers ASAP to reduce my basis on the Octobers.

a. This one is of course a home run! The $390s shot up to $19.70 (up 1,975%). The Oct $410s are at most a triple at $17.10 (up 265%).

B) Take a 1/10 (of what you are willing to risk) position on the Sept $390s for .95. If that doesn’t work, by expiration, take a 2/10 position on the Octobers that are $30 out of the money, followed by a 4/10 position in the Januarys that are $30 out of the money at the close of November contracts. If the stock is still flat on 19th, be glad you still have your 30% and go home!

a. Well, that one worked a little too fast, but its always nice to make 1,975% in 5 days isn’t it?

We’ll follow up next week. As I said, I’ve taken half off the table to guard against a pullback, and will take the rest off to reposition shortly -- so stay tuned!

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Source: Phil Davis' Google Call: Update #2