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Google Option Traders Bet On a Strong Weekly Finish

GOOG's weekly call options are popular in today's session

by 12/10/2012 2:17 PM
Stocks quoted in this article:

Option traders have been accumulating calls on Google Inc (NASDAQ:GOOG - 684.84) with some rapidity of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 1.51 ranks higher than 74% of other such readings. In other words, calls have been bought to open over puts at a faster-than-usual clip in recent weeks.

Calls are winning the numbers race in today's session as well. Roughly 21,000 call contracts have changed hands so far, compared to around 16,000 puts. Short-term speculators have turned their attention to GOOG's weekly series of options, specifically the stock's 12/14 690- and 700-strike calls. Of the respective 2,373 and 2,124 contracts traded, a healthy portion at each strike has crossed at the ask price, implied volatility was last seen higher, and volume is outstripping open interest. Putting it all together, it seems new bullish positions are being initiated.

By buying the near-the-money 690-strike call to open for a volume-weighted average price (VWAP) of $5.38, traders expect GOOG to finish the week north of the $695.38 mark (the strike plus the average premium paid). Meanwhile, the purchasers of the out-of-the-money 700-strike call will begin to profit with each step above $702.02 (the strike plus the VWAP of $2.02) the stock takes through week's end. These breakeven levels represent a respective 1.5% and 2.4% premium to the equity's current price.

On the charts, GOOG is sitting on a formidable 9.2% year-over-year gain. After making a steady run higher in August and September, the stock gapped lower on Oct. 18, following an earnings miss. The equity's most recent attempt to fill in this bearish gap was quickly rejected by its 50-day moving average. This trendline is currently docked at the $699.31 mark, and GOOG hasn't experienced a daily close north of it since Oct. 17.

GOOG made headlines this morning, after it was revealed the company legally evaded paying $2 billion in taxes on its 2011 filing. However, this news appears to be of little concern to investors. At last check, the stock was up around 0.1% to trade at $684.84.

Should GOOG fail to topple the aforementioned breakeven levels by Friday's close, though, the most today's weekly call buyers stand to lose is the initial premium paid.


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