Monday, April 7, 2014

Google (GOOG) - Risk Explodes to Multi-year Highs; GOOG's Earnings Aren't Just About a Single Company Anymore.

GOOG is trading $531.90, down 2.1% with IV30™ up 4.6%. The Symbol Summary is included below.

Provided by Livevol

UPDATE 4-10-2014

Provided by Livevol

This is a broader note surrounding GOOG but also momentum stocks in general and the SPX.  I highly recommend looking at a note posted 4-1-2014, here:

NFLX, TSLA - Correlation of MOMO's May Point to Bubble Pop; 3 Things We Should Know

On 4-3-2014, I wrote that the VIX was too low (13.34%):

VIX - Has the Market Fallen Asleep?

 I also wrote a pre-earnings note on GOOG on 4-1-2014 (a week ago). You can read that post here:

Google (GOOG) - Earnings Preview: Option Market Reads: Risk is Here

Atthe time of that post I noted that GOOG volatility was rising, and although earnings are coming out 4-16-2014, the volatility was nearing an unprecedented level over the last couple of years. Today it has gone past "nearing" and is now actually at multi-year highs, still with more than a week to go before earnings.

The Symbol Summary from 4-1-2014 is included below, note the IV30™.

Provided by Livevol

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

Provided by Livevol

On the stock side we can see the recent drop (yeah I know about GOOGL vs. GOOG, but GOOG has the historical data behind the volatility).  Let's see how that stock drop compares with SPY (since 1-31-2014),  below:

Provided by Livevol

SPX is the yellow curve, GOOG is the red curve.  So while GOOG has been dropping hard, the broader market has done pretty well.  OK, so that's just comparing momentum to SPX, right?

Not quite... Here's another chart, this time with GOOG (red), SPX (yellow), TSLA (green) and NFLX (blue).

Provided by Livevol

Note that SPX and TSLA have outperformed GOOG, while NFLX is the worst performer of the group.

OK, let's turn to the volatility; the two-year GOOG IV30™ chart in isolation, below.

Provided by Livevol

There you have it; GOOG implied vol is now at its highest level in two-years and it should rise as earnings approach.

Now, a fair question again is, "didn't the market do the same thing?"  Actually, no...

Below is the three-month GOOG IV30™ in red vs SPX IV30™ in blue (proxy for the VIX).

Provided by Livevol

GOOG vol has been rising well ahead of earnings while the volatility in SPX has been pretty stable.  GOOG's stock return and volatility have now detached from the correlation we saw prior.

Finally, the Options Tab is included below.

Provided by Livevol

On 4-1-2014, I wrote:
"The at-the-money (ATM) $1130 strike straddle prices a range for GOOG in [$1068, $1192] by the end of Apr expiry. Let's see how that evolves as we approach earnings. Keep in mind, GOOG can move far away from $1130 before earnings... In fact, I'd be surprised if it didn't."

GOOG is trading 530.65 which is the equivalent to ~$1061 pre-split.  So, yeah, the stock has moved far from the original price.

Watch GOOG / GOOGL (and NFLX, TSLA, etc).   On March 11th I thought I saw the beginning of the momentum bubble deflation. Here's my tweet:

GOOG is a real company, real earnings, real future, real cash.  If it can't hold up in this potential deflationary stage for tech/MOMO stocks, there's not much hope for the rest.

Make no mistake about it, GOOG's earnings are not just about a single company anymore.

This is trade analysis, not a recommendation.

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