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Option Bears Mob Google Before Earnings

GOOG puts are heating up

by 10/18/2012 11:23 AM
Stocks quoted in this article:

Put players have been pummeling Google Inc (NASDAQ:GOOG - 751.80) recently, as evidenced by the latest data from the major options exchanges. 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 1.09 -- just one percentage point from a 52-week peak. Or, simply put, option buyers have initiated bearish bets over bullish at a near annual-high rate during the past two weeks.

Echoing that trend, the security's Schaeffer's put/call open interest ratio (SOIR) now rests at 0.90 -- in the 75th percentile of its annual range. In other words, short-term puts are much more prevalent than usual right now.

In the soon-to-be front-month November series of options, the out-of-the-money 700 strike has garnered notable attention, with put open interest increasing by about 8,000 contracts over the past 10 sessions. As such, the 700 strike is now home to peak put open interest in the November series, with more than 11,500 contracts outstanding.

However, considering these puts are so deep out of the money, and that GOOG just tagged a record high of $774.38 earlier this month, these puts could've been purchased as portfolio protection. By buying protective puts, the GOOG investors can lock in a sale price of $700 for their shares, should the stock blaze a path significantly lower in the near term. Nevertheless, since they're shareholders first and option traders second, their primary goal is for GOOG to extend its quest for record highs and let the puts expire worthless.

Elsewhere on Wall Street, the brokerage bunch is enamored of GOOG. The stock boasts 27 "strong buys" and three "buy" ratings, compared to three lukewarm "holds" and not a single "sell" or worse rating. Plus, the average 12-month price target on the security stands at $816.17 -- in territory not yet charted by the stock -- and keeps edging higher. In fact, just yesterday GOOG scored a price-target hike at Raymond James, with the analysts upping their target to $835 from $730. In addition, Needham this morning lifted its price target to $825.

As alluded to earlier, the shares of GOOG have spent the past few months assailing new heights, but are now consolidating atop support in the $740-$750 region. What's more, the equity's formerly supportive 10-day and 20-day moving averages just made a bearish cross, which often precedes a bout of technical speed bumps in the short term.

Fundamentally, the company is on deck to report earnings after the close tonight. According to Thomson Reuters, analysts are anticipating a third-quarter profit of $10.65 per share on sales of $11.86 billion -- an improvement over the firm's year-ago profit of $9.72 per share on revenue of $7.51 billion. From an historical standpoint, the search-engine sultan has bested Wall Street's bottom-line estimates in three of the past four quarters.

Daily Chart of GOOG since July 2012 With 10-Day and 20-Day Moving Averages


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