By Michael Zerinkas
Shares of Google Inc. (GOOG) have been on the defensive for the past month; after testing and failing at the 50-day moving average, shares have slipped precipitously lower. With shares now flirting with the 200-day moving average, a metric shares have not seen since mid-September, one has to wonder if the buyers are going to storm into the name.
As far as technical levels are concerned, it is unclear. Take a look at a yearly chart and you will see the massive gap up in October, from $540.93, followed by a gap test, which was bought at $553.31. Beyond those two levels, $540.00 appears frequently throughout the year as a test level, where resistance and support was formed and broken several times.
The aforementioned levels would normally conclude that shares have further to correct; however, given the stock's already precipitous decline, Google also seemed primed for seem mean-reversion to the upside. Note that the 50-day moving average is up near $602; shares rarely trade this far off of that metric for very long.
This seems to indicate that Google will be in a large holding/consolidation period for, at least, the next few weeks. The only real monkey-wrench could be earnings on April 15th, which have been proven to be highly volatile events in the company's recent history.
Also interesting is the stock's implied volatility history surrounding earnings, where IV has jumped by at least 30% prior to its past three earnings releases.
Putting all the factors together, there is one trade that option traders might consider on Google heading into April: Buy the April $570 straddle now for $41.60 and sell it just minutes before the close on April 14th, thereby capturing to IV premium prior to earnings. In addition, you would sell the April $610/530 straddle at that point for roughly $21.00 and let the short straddle decrease in value following the earning release.
This is a complicated and sophisticated trade; please understand the inherent risks and metrics before executing such.
Google Inc. is focused on improving the ways people connect with information. The company generates revenue primarily by delivering online advertising. The company focuses on areas, such as search, advertising, operating systems and platforms, and enterprise. The company maintains an index of Websites and other online content, and make it available through its search engine to anyone with an internet connection.
Disclosure: I am long GOOG.
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