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"Tip Of The Day", Chapter 15: Sell SELL GOOG 01/19/2018 $1060 CALL @ $14.40

|About: Alphabet, Inc. Cl C (GOOG), Includes: AAPL, AMZN, FB, MSFT, NFLX
Summary

Minimum 25 daily tips between 11/9/2017 to 12/29/2017.

Each tip is going to be measured on a total return (TR) basis at the end of 2017.

The Wheel of FORTUNE will get $1 credit for each successful tip (positive TR) and $1 debit for each unsuccessful tip (negative TR).

The net balance would be deducted from The Wheel of FORTUNE annual fee as of 1/1/2018.

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1. Business days only, during market-opening hours

2. A trade that can get executed at the time of this publication

3. Performance = total return from now on, till the end of 2017.

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A very similar trade to what we did with MSFT the other day...

We believe that 2018 won't be as good for the technology sector as it was in 2017. Valuations are very expensive already and the earnings beats are not impressive when you see how many times Wall Street is reducing the estimates before the actual numbers.

The FAAMNG (FBAAPLAMZNMSFTNFLXGOOG) are the first names that come to mind. Nevertheless, there are few names in this gang that we would never dare fighting/selling...

We are differentiating the "FAA" from the "MNG"; while we keep the former - we start dilluting the latter

Main theme here:

Time to let go. A simple profit taking never hurts, especially when the valuation hardly ever been that expensive. 

Why GOOG?

  • Over the past year, the P/E ratio has run way ahead the EPS growth
Chart
GOOG PE Ratio (NYSE:TTM) data by YCharts
  • The stock seems to be getting "tired" (or at least stuck) recentlyChart
  • GOOG trades next to its all-time high. Time to take some chips off the table

Why now?

  • GOOG's Q1/2018 supposes to be worse than Q4/2017
Q4 2017 Estimate Trends
Current: $10.01
1 month ago: $10.00
3 months ago: $9.61
Q1 2018 Estimate Trends
Current: $9.24
1 month ago: $9.23
3 months ago: $9.01

Source: WSJ

  • It seems like nothing major will happened before the next ER (1/29/2018)
  • If the options get assigned we sell GOOG for a net price of $1074 (=strike+premium=$1060+$14). That's more than +4% versus the stock current market price.
    We can live with trimming some GOOG at that level before the next ER.
  • If the options don't get assigned - we make on the 43 days an annual return of 11.78% = (1+$14/$1060)^(365/43)-1

Wishing you a successful trading day and see you tomorrow with a new "tip of the day". Stay tuned!

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Past list of tips:

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    Our Marketplace service, "The Wheel of FORTUNE," is currently offering a free two-week trial with a special bonus for new annual paying subscribers:

    • If you become a paying annual subscriber till and including 12/15/2017 - we will extend your subscription period with two months free of charge.
    • If you become a paying annual subscriber till and including 12/31/2017 - we will extend your subscription period with one month free of charge.

    The extra-extended period of free subscription will be given at the end of the one year of paid subscription.

    The Wheel of FORTUNE has just published its monthly review where all the suggestions since the service was launched are presented.
    Since we also offer a two-week free trial (till year end) - all you need to do is to simply sign up and look at things, first hand, from the inside.