Forget what happened yesterday (see Q1 Goog earnings call transcript), it was a Google (GOOG) evening!
On Wednesday morning, even if you were not a member and in on our main plays, you might have benefited from this advice: "We have many earnings heavyweights yet to report, including our beloved Google, who are being held down this morning by a WSJ report that ad clicks were weak in March, recycling the same story for the third consecutive month as GOOG’s policy change works its way through the system, so let’s be thrilled with the opportunity to pick up the $460s again for $9 this morning, this time I feel good enough to make it an official 10 in the DTP!"
At $520 we can expect to roll our callers to 20 May $500s at $35 while paying the $20 to cancel out the extra 5 April $450 caller, which is no problem as we should get a nice double off our $77,000 position - this is very good for a portfolio we started with just $100K total on March 3rd!
Our main play on Google is in the Complex Spreads Portfolio where GOOG accidentally became a major holding as we rolled our January calls lower and lower, taking a 20% loss to stay in position against our callers. We ended up with 60 Jan $420s covered with 30 Apr $450s which were themselves topped off with 50 Apr $500s, as they were just $2.80 at the time we took them (4/11) and were well worth it to cap the potential gains of our $20 callers. This position will make a silly amount of money so please excuse me if I am in a silly expiration day mood!
For those of you who more than 1/2 covered Google, this will be tricky but keep in mind that your April callers will have no premium and that May callers will have max premium on the morning spike, so that is going to be a good time to roll. Understand that if you roll a $450 caller with no premium at $70 to a $50 May caller with, say $20 in premium (and I STRONGLY advise biting the bullet and giving your caller his $20 back on the roll) that if GOOG gains another $50, you still make the $20 in premium and owe your caller just $30 more than he paid you. but your very deep in the money long position will get almost 100% of that $50 gain.
It is even possible that we will be able to roll our callers into some April calls tomorrow morning that have $10+ premiums and I will consider that as an interim step to rolling to May.
It’s going to be a wild and busy day with GOOG earning 30% more than they earned last year, when they were also trading at $450, so let’s say $600 is reachable on this run but probably not tomorrow.
I’m not going to analyze GOOG (but here’s Erick Schonfeld with the CC review) now, I’m too excited about it and there are 1,000 guys doing write-ups today after the fact. We put our money where my mouth is long ago as we put our collective feet down at $420 and picked up our Google and Apple (AAPL) plays at what is now looking like a very nice bottom. I will mention something that the analysts seem to be missing - Google still hasn’t monetized YouTube! Yes, YouTube has over 100M videos downloaded a day and each video is a new page so even if we assume NO browsing and even if we assume Google would make just one penny per page that they put ads on (and it would be more because, with YouTube, they own the property so they collect both ends of the banner revenues) we are talking about an extra $1M per day as a very conservative estimate of YouTube ad potential. I would say this will end up dropping closer to $500M to the bottom line.
The next big thing
So congratulations to all who played along at home. Now we move on to my next big prediction, that Meredtith Whitney has overstated the negative case for CitiGroup to the extreme. Just like with Google, where our premise was that the ComScore (SCOR) data was, if not wrong, an overused hyena attack, the takedown of CitiGroup from $50 to $20 was equally ridiculous - a position I outlined way back on 3/28, when the stock was just under $21.
We have major bets on C, Bank of America (BAC) and XLF (XLF) with our riskiest play being the June $25s we left naked in the $25KP. Also, congrats to those readers who took my play yesterday morning: "C is getting tempting again with a nervous sell-off taking them back to $23 and we already have some long positions but I think it will be fun to pick up the $25 calls for .15 today, hopefully .10. The trick is to buy a lot and then sell 1/2 on a .10 move up, leaving you with a fairly free trade." Ironically, I missed it as we had a technical glitch in chat in the morning, but it was a great plan with the C calls doubling during the day already.
Man I love this job!
