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Google Inc (GOOG) Options Crowd Sees Limited Gains Ahead

Google Inc's weekly 3/28 1,240-strike call took center stage yesterday

by 3/19/2014 9:26 AM
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Option Brief: Google Inc (NASDAQ:GOOG) calls outpaced puts yesterday -- 43,000 contracts to 26,000. The most sought-after option was the Internet giant's weekly 3/28 1,240-strike call, which saw nearly 5,400 contracts change hands during the course of the session. About four-fifths of the volume here traded at the bid price, suggesting the contracts were sold, and open interest spiked overnight, pointing to freshly created short positions.

By writing the calls to open, the traders think GOOG shares will remain south of $1,240 through the closing bell on Friday, March 28, when the weekly options expire. If that happens, the contracts will be rendered worthless, and the sellers will pocket the initial premium received as their maximum potential profit. However, if the stock spikes above the strike price, the traders could be assigned, and forced to sell the shares for $1,240 apiece, no matter how much they're worth.

Of course, given the fact that GOOG has rallied nearly 50% in the past year, but has been consolidating in the $1,180-$1,220 level since early February, it's possible that some of the call sellers are shareholders. In other words, the traders may have sold the (covered) calls in order to generate some short-term income on the sideways-moving stock, while remaining bullish in the long term. As of yesterday's close, the security was perched at $1,211.26. What's more, GOOG has yet to topple the $1,240 mark.

On the fundamental front, Google Inc (NASDAQ:GOOG) announced yesterday that Android-based smartwatches will become available for purchase later this year. Although the market for smartwatches is currently unknown, Juniper Research anticipates north of 130 million units will ship within the next four years.


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