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Google Traders Predict Near-Term Stagnation

GOOG's weekly options attract call sellers

by 12/13/2012 2:21 PM
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Google Inc (NASDAQ:GOOG - 701.65) has edged higher today, after the company released a downloadable version of its mapping application that is compatible with the iPhone. As such, roughly 55,000 calls have been exchanged so far, which is double the equity's anticipated intraday call volume. By contrast, just 36,000 puts have crossed the tape.

However, not all of today's call activity is bullish in nature. The most active option has been the weekly 710 strike, where nearly 9,700 contracts have changed hands -- a large portion of them at the bid price, suggesting they were sold. These out-of-the-money calls traded at a volume-weighted average price (VWAP) of $2.33. Since this option currently holds open interest of less than 2,000 contracts -- coupled with the fact that implied volatility was last seen six percentage points higher -- it's likely that new positions are being initiated here. By selling these calls to open, traders are betting on the stock to remain below the $710 level -- rendering the options worthless, and allowing them to pocket the net credit received.

From a broader sentiment scope, GOOG puts have an edge over calls. In fact, the equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.94 is just one percentage point shy of a bearish peak, confirming traders have been buying to open puts over calls at a near annual-high pace during the last few months. Similarly, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.95 ranks higher than 90% of comparable readings gathered within the past year, meaning short-term speculators have been more put-heavy toward the security only 10% of the time over the last 52 weeks.

Elsewhere, most of the analysts covering the search-engine giant have higher expectations for GOOG. The stock boasts 21 "strong buys" and four "buy" endorsements, compared to five "holds" and not a single "sell" suggestion. What's more, Thomson Reuters shows an average 12-month price target of $798.35 for the security, representing expected upside of about 14.4% to Wednesday's closing price of $697.56.

From a technical standpoint, GOOG has gained nearly 13% during the past year, and almost 9% year-to-date. Meanwhile, a look at the charts shows that today's advance puts the stock on pace to finish the session above its 80-day moving average, a feat accomplished only one other time since early November. Should the security continue to climb prior to tomorrow's close, today's call sellers could find themselves at risk of assignment.


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