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Google Inc (GOOG) Upgrade Doesn't Stop the Bears

Interesting weekly option trade is GOOG April 5 760-strike put

by 3/27/2013 2:09 PM
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Despite earning a target price hike from one analyst this morning, Google Inc (NASDAQ:GOOG - 802.06) is following the general market trend downward, and continuing its own slump. And option bears are looking to keep up -- three of the five most popular tickers for GOOG on the option trading floor today are puts.

One of the more interesting trades is the extremely bearish weekly 4/5 760-strike put, which has seen more than 2,000 contracts change hands. Volume is greater than open interest for this option, which has seen 79% of contracts traded at the ask price, meaning that at least some are being purchased to create new positions. With a volume-weighted average price (VWAP) of $1.17, GOOG needs to fall below $758.83 (strike price minus VWAP), or 5.4%, by the close next Friday in order for these puts to be profitable. Of note: the delta on this put is only negative 0.072, or 7.2%, meaning the options market gives the trade less than a 1-in-10 chance of finishing in the money at expiration.

This morning, Credit Suisse raised its target price on Google to $982 from $847, despite a relative chill on the charts recently. And yesterday, Schaeffer's own Senior Options Strategist Tony Venosa, CMT, posited that the stock could rebound to a new all-time high. GOOG is up 13.7% on the year but has leveled off in March -- it's only up 0.1% this month, losing ground in 10 out of the last 16 sessions. (It is off nearly 1% so far today.) The stock also has dropped below its 10- and 20-day moving averages, which until recently had served as support.

Yet today's put traders appear to be in line with the current bearish option sentiment toward Google. The Schaeffer's put/call open interest ratio (SOIR) for GOOG is 1.15, just 4 percentage points from an annual high. That means put open interest is nearing its high point as compared with the previous 12 months. And Google's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 1.01, which stands in the top 12% of readings over the last year -- again indicating that puts are being bought to open at an accelerated rate.


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