Thursday, January 16, 2014

Google (GOOG) - Option Market Was Asleep; But Oh How it Has Awakened for Earnings.

GOOG is trading $1157.30, up 0.8% with IV30™ up 2.3%. The Symbol Summary is included below.

Provided by Livevol

Google Inc. (Google) is a global technology company. The Company’s business is primarily focused around key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products.

This is a follow up to the article I posted on 12-26-2013. You can read that post by clicking on the title below:

Google (GOOG) - Volatility Dipping; Has the Option Market Fallen into a Mistaken Malaise?

The last post surrounded depressed volatility in GOOG. Here's a quick snippet:

The rises and falls into and out of earnings (the blue "E" icons) are normal, but I find a little abnormal is the current level of the implied. Right now GOOG's IV30™ sits in the 14th percentile on an annual basis. Hmmm...


Whether or not the US is in a bubble, there is a question.. that is, there is a two-sided argument. If that's the case, then a behemoth cap that has seen a rise in market cap over two-years that in and of itself would make it a top ten company by size in the US, should probably not be seeing volatility levels in the 14th percentile.

The Symbol Summary from 12-26-2013 is included below:

Provided by Livevol

Check out that IV30™ number -- it was at 17.82%.  Today, we see IV30™ at 25.79% which is a 45% rise in less than a month.  So, in English, the option market has "changed its mind."  Now a part of that rise is certainly due to earnings (due out at the end of Jan), but there are a number of companies (like AAPL) which have earnings due out bu the implied is still substantially depressed.

Let's turn to the GOOG Charts Tab (two-years) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

Across the top we can see the awesome price appreciation which has seen ~$200 billion in market cap growth.  That rise in and of itself would make it into the top 10 largest companies in the US.  But there's more...

The recent spike in price to all-time highs started with a earnings blow out (see the blue "E" icons, they represent earnings dates).  GOOG spiked more than $100, set an all-time high and has continued to rise from there, making all-time highs a daily occurrence.

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

Provided by Livevol

We can see that recent rise in the IV30™.  It should continue to rise into earnings and it will be interesting to see if the implied eclipses the level reached before the prior earnings release (which saw a huge stock pop).  As of right now, the IV30™ for GOOG is in the 64th percentile on an annual level.  If that doesn't rise to the 80th percentile (ish), we may be looking at an under priced earnings event in the options. But time will tell.

Finally, the Options Tab is included below.

Provided by Livevol

Across the top we can see that Feb vol is priced to 25.75% while Mar is priced to 23.50%.  I expect that Feb vol to rise, but if it sticks in the 26% range, that would be a pretty loud and clear message reflected by the option market: "last earnings surprise is not expected this time."

We'll revisit GOOG right before earnings.

This is trade analysis, not a recommendation.

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