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Google Bears Place Last-Minute Bets

GOOG traders are targeting soon-to-expire put options

by 11/16/2012 11:22 AM
Stocks quoted in this article:

Option traders are placing eleventh-hour bets on Google Inc (NASDAQ:GOOG - 642.23) today, especially on the put side of the tape. At last check, GOOG has already seen roughly 29,000 puts change hands -- a 69% markup to its average intraday put volume. What's more, five of the seven most-active put strikes are in the November series of options, which have a shelf-life of just a few hours.

Most notably, the security's November 640 put has seen close to 5,300 contracts cross the tape on open interest of fewer than 2,250, pointing to new initiations. Plus, the majority of the puts have traded at the ask price, suggesting they were bought.

By purchasing the puts to open, the buyers are expecting GOOG to retreat beneath the $640 level through today's session. More specifically, the volume-weighted average price of the puts is $2.35, indicating a breakeven level of $637.65 (strike minus average premium paid). However, even if the stock remains north of the strike, the most the buyers can possibly lose is limited to the initial premium paid.

From a broader sentiment perspective, today's appetite for puts is just more of the same for GOOG. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio has ascended to a 52-week high of 1.22. In other words, option buyers have initiated bearish bets over bullish at an annual-high clip during the past couple of weeks.

As a result, the security's Schaeffer's put/call open interest ratio (SOIR) stands at 0.82 -- higher than 64% of all other readings of the past year. Or, in simpler terms, short-term options players are more put-biased than usual right now.

In early trading, the shares of GOOG have fallen in tandem with the broader equities market. However, as Schaeffer's Senior Options Strategist Tony Venosa, CMT, pointed out yesterday, the stock could find support in the $642 area, which marks its 61.8% Fibonacci retracement level. In addition, the stock's 200-day trendline has ascended into the region, and could act as an added ally on the charts.


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