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Can Google (NASDAQ:GOOG) Extend Its Tablet Momentum?

GOOG traders picked up weekly options at the 570 strike

by 6/28/2012 9:20 AM
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Google Inc (NASDAQ:GOOG - 569.30) was popular among weekly options traders on Wednesday, as speculators digested news of the company's entry into the tablet arena. Most popular all around was the at-the-money 570 strike, which saw about 3,650 weekly puts and 3,400 weekly calls change hands. The bulk of the options traded at the ask price, and open interest rose at both strikes overnight, pointing to buy-to-open activity.

By purchasing the weekly puts to open, the traders are betting on GOOG to retreat beneath the $570 mark through the end of the week, when the options expire. On the flip side, the weekly 570-strike call buyers are expecting the shares to extend yesterday's upward momentum through Friday's close.

Meanwhile, more aggressive option bulls were shooting for the proverbial moon by buying to open the weekly 590-strike call. By the closing bell, nearly 1,800 contracts changed hands at this out-of-the-money strike -- mostly at the ask price, suggesting they were purchased. Plus, open interest rose by nearly 1,000 contracts overnight, confirming our theory of newly added positions.

From a broader sentiment perspective, though, boldly optimistic options trades are few and far between these days. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day put/call volume ratio of 0.88 -- in the 93rd percentile of its annual range. In other words, options traders have bought to open GOOG puts over calls at a near annual-high clip during the past couple of weeks.

Elsewhere on the Street, however, GOOG still has plenty of fans. In fact, the stock boasts 26 "strong buys" and three "buy" ratings from analysts, compared to two lukewarm "holds" and not a single "sell" recommendation. In the same vein, the consensus 12-month price target among the brokerage bunch stands at a lofty $739.54 -- implying expected upside of 30%, and in territory explored only briefly in November 2007.

On the charts, the shares of GOOG have struggled since breaching their 200-day moving average in late May. This trendline -- now in the $600 neighborhood -- acted as resistance in mid-to-late 2011, before switching roles to serve as support. More recently, the security has been struggling beneath its 20-day moving average, which has capped all but one of GOOG's daily closes since May 21. Supporting the stock, however, has been the $560-$565 area, which -- like its 200-day moving average -- has acted as both a ceiling and a foothold over the past year.

Daily Chart of GOOG since August 2011 With 20-Day and 200-Day Moving Averages


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