Internet search company Google (GOOG) has been a busy bee lately with Google's Chrome browser now available for Apple's (AAPL) iPhone and with the acquisition of Motorola Mobility. How Google's acquisition of Motorola Mobility plays out will be very interesting. Did Google acquire Motorola Mobility in order to get into the hardware business, or did Google acquire the company primarily for their patents? Motorola Mobility's patents provide Google with a way to help fend off patent infringement claims from the likes of Nokia (NOK) (Nokia Accuses Google's Nexus 7 of Patent Infringement) and other technology related companies.
In Google's Q1 2012 earnings call, the company indicated revenue was $10.6 billion and was up 24% year-over-year and 1% quarter-over-quarter. Google's non-U.S. revenue accounted for 54% of the company's total revenue, so the company's fortunes are heavily dependent on international economics. So far, Google has integrated 120 of Google's functions into Google+. Google noted 170 million people have upgraded to Google+ and that Google+ has two components: a social spine and a social destination. The company is seeing three big trends. First, the company is seeing a desire by its clients and partners for solution that works across all computing platforms. Second, large brand advertisers are looking more and more to digital media for an advertising conduit. Third, cross-media measurement is important, as businesses typically do not allocate large amounts of advertising dollars until the results are measurable and have a positive return on investment. The company indicated Hangouts, Google's face-to-face chat service, is seeing a lot of traction. The company noted headcount growth for the quarter was 600, which was at a slower rate of growth than for prior quarters.
Google's stock price has retreated from its high in the $670 range, and has recently bounced off of its previous support in the $560-570 range as shown below:
With Google's next quarterly report fast approaching and Google's international exposure, an investor in the company might consider a protective investment strategy in the company. With all of the upheaval in Europe, it would not be surprising for Google to announce its international results were not-so-hot for the quarter.
With Google's stock price off of its prior support level, a couple of protective investment options may be considered: a married put and a collar/protected covered call. A married put provides unlimited upside with limited downside and may be entered by purchasing a put option against a long position in the stock. A collar/protected covered call provides an investment for receiving a potential return with limited downside and may be entered by selling a call option against a stock and using some of the proceeds from selling the call option to purchase put option for protection or "stock insurance."
A married put strategy is typically entered via purchase of a put option far out-in-time, as this reduces the cost of the insurance per day. Using PowerOptions tools to search for January of 2013 reveals several potential married put investment positions for Google as shown below:
The married put using the 2012 Jan 590 put option looks attractive, as it provides a maximum potential loss of 7.1%, and may be entered against a long position in the stock via purchase of the put option for $47.90.
Married Put Trade
- GOOG stock (existing or purchased)
- Buy 2013 Jan 589 Put at $47.90
For a stock price below the $590 strike price of the put option, the value of the married put position remains unchanged. If the price of the stock increases to above the $590 strike price, income methods as described by RadioActiveTrading.com may be applied in order to receive income and reduce risk.
For the protected covered call, a number of viable positions are available as shown below:
(click to enlarge)
The position with the highest potential return of 3.1% (26% annualized) and with a maximum potential loss of 7.5% looks attractive. The position may be entered by selling the 2012 Aug 585 call option for $24.50 and purchasing the 2012 Aug 525 put option for $5.10.
Protected Covered Call Trade
- GOOG stock (existing or purchased)
- Sell 2012 Aug 585 Call option for $24.50
- Buy 2012 Aug 525 Put option for $5.10
A profit/loss graph for one contract of the protected covered position is shown below:
For a stock price below the $525 put option, the value of the protected covered call remains unchanged. If the price of the stock increases to around $670, the position can most likely be rolled in order to realize additional potential return.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
