Google (GOOG) - Options Trades into Earnings

GOOG is trading 579.14 as of the writing of this blog - could have moved since. The LIVEVOL™ Pro Summary is below.



All of the option prices are taken at exactly the same time as the above stock print for consistency. This is designed merely as an illustration of possible trades into earnings - as GOOG is one of the most popular and liquid names. None of this is advice - it is purely hypothetical - I have no idea were GOOG is gowing - wish I did.

The Options Tab snapshot is included below (click the image to enlarge) - I will refer to prices several times.



The Charts Tab snapshot with the Earnings & Dividends snapshot embedded inside it is also included below (click the image to enlarge).


Four out of an infinte number of ways to play GOOG earnings with options:

(1) Super Risky Short Straddle
Using the Feb 580 straddle as ATM and selling in between NBBO but a little worse than mid market: Sell 1 ATMStraddle
Bet: GOOG stays at 580 at expiration (Feb 19)

Collect: $22.90 (calls) + $23.10 (puts) = $46.00
Risk = UNLIMITED (yikes)
Max Gain: $4,600 (on one single straddle)
Click the PnL chart to enlarge it (below)


(2) Buy 1 570/580/590 Butterfly (calls)
Bet: GOOG stays at 580 at expiration (Feb 19)

Buy 1 570 call for: 28.20
Sell 2 580 calls @: 22.90
Buy 1 580 Call for: 18.40
Cost = 28.20 + 18.40 - 2*22.90 = $0.80
Max Gain: $920
Max Loss: $80
MG/ML = 11.5:1
Click the PnL chart to enlarge it (below)


(3) Buy 1 580/590/600 Butterfly (calls)
Bet: GOOG goes up to 590 at expiration (Feb 19)

Buy 1 580 call for: 23.10
Sell 2 590 calls @: 18.30
Buy 1 600 Call for: 14.40
Cost = 23.10 + 14.40 - 2*14.40 = $0.90
Max Gain: $910
Max Loss: $90
MG/ML = 10.11:1
Click the PnL chart to enlarge it (below)


(4) Buy 1 560/570/580 Butterfly (calls)
Bet: GOOG goes down to 570 at expiration (Feb 19)

Buy 1 560 call for: 34.00*
Sell 2 570 calls @: 28.10
Buy 1 580 Call for: 23.10
Cost = 34.00 + 23.10 + - 2*14.40 = $0.90
Max Gain: $910
Max Loss: $90
MG/ML = 10.11:1
Click the PnL chart to enlarge it (below)


* Since the call market is too wide to use mid market -->
34.00 is derived from put-call parity. If the puts are worth 14.60:
Calls = 14.60 + (579.14 - 560) + cost of carry
= 14.60 + 19.14 + ~0.26 = $34.00


Of course, there are infinitely many more outcomes. These are infact limited to small stock moves and are fairly rigid. The payoff for the safer butterfly (compared to the naked straddle) is > 10:1 which seems tempting. But then again, what are the odds GOOG hits those values at stays there until 2/19? Is it less than ~10%?

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