* Google (GOOGL) - Unprecedented Pricing; Are Earnings Today Less Risky than Any Other in the Last 2-years?

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GOOGL is trading $593.35, up 0.1% with IV30™ up very small. The Symbol Summary is included below.

Provided by Livevol

UPDATE 7-17-2014 (one-day later)

Provided by Livevol

This is a follow up to my post one week ago
GOOG - Earnings Preview: Something We Haven't Seen in 2-years. Did You Know This?

The conclusion from that post was:
The risk as reflected by the option market in the GOOG stock price is lower now than it has been in any of the prior seven quarters. Further, prior to this event, the last three earnings cycles actually showed continually increasing risk and all of a sudden we see a dramatic drop in that risk for this earnings release.

The conclusion today is the same, and you gotta see this...

How the Option Market is Totally Wrong; Proof that Market Volatility Has Lost Its Mind.

The five-year stock chart is included below.

Provided by Charles Schwab optionsXpress

GOOGL (GOOG) has risen 168% over the last five-years.  The interesting part is that abrupt dip earlier in the year from ~$615 (an all-time high) all the way down to ~$515 in just two-months.  The second most interesting part is the rise all the way back up to current levels of ~$595.

So what?... GOOGL stock is risky, at least it was risky for the last four-months. I bring that up because the options market reflects that risky time is now over... a lot.

Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

The implied volatility is the forward looking risk in the equity price as reflected by the option market (IV30™ looks forward exactly 30 calendar days). The blue "E" icons represent earnings dates, and we can see the rather low risk reflected in this earnings release by the option market.

It's easier to see if I clean up that chart and only include the earnings dates, so here we go:

Provided by Livevol

There is a pretty well defined range between which GOOGL earnings risk generally holds. That statement was true until today... The risk today (the yellow circle) is well below any level into earnings for GOOGL in the last two-years.

So... is GOOGL really not risky right now?I have seen some articles which read, "yeah, this quarter to quarter stuff shouldn't matter."  Here's one as an example:
Why Google (and investors) shouldn't care about its quarterly results

The gist of the article is that GOOGL management looks 3-5 years down the road and show a general disinterest in short-term results and goals.  That's actually great to hear and I think most shareholders appreciate that sentiment.

But there's one thing... Anytime a headline reads "should" or "shouldn't" about the stock market, I can tell you right now it's wrong; not for it's analysis... It's wrong because "should" or "shouldn't" have nothing to do with "is" and "is not."

Here's the simplest example of them all:
This market should go down.
This market is going up.

For the long-term (3+ years) investor, this shouldn't matter... in fact, stop reading this article; it's short sighted (literally a one-day earnings move). Does that mean the stock won't move abruptly off of earnings?...

Well, "should" it?

Finally, the Options Tab is included below.

Provided by Livevol

Using the at-the-money (ATM) straddle in the July monthly expiration we can see that the option market reflects a price range of [$567, $618].

• If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
• If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
• If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.

UPDATE 7-17-2014 (one-day later)

Provided by Livevol

Using the at-the-money (ATM) straddle in the July monthly expiration now we can see that the option market reflects a price range of [$557.5, $607.5].

• If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
• If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
• If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

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