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Google Option Players Predict More Highs

GOOG calls were hot on Friday

by 2/4/2013 10:26 AM
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Call traders converged on Google Inc (NASDAQ:GOOG - 766.04) on Friday, as the stock climbed to a new all-time peak of $776.60. By the closing bell, the equity had seen roughly 111,000 calls change hands -- about twice the norm -- compared to 69,000 puts. While much of the volume consisted of eleventh-hour betting or profit taking at weekly strikes, some traders gambled on even higher highs for the search sultan this week.

Among new positions, the equity's weekly 2/8 775-strike call took the proverbial cake, with open interest increasing by more than 1,400 contracts over the weekend. Plus, the majority of the calls crossed the tape at the ask price, suggesting they were bought.

By purchasing the calls at a volume-weighted average price (VWAP) of $4.66, the buyers expect GOOG to muscle atop the $779.66 level (strike plus average premium paid) -- in territory not yet charted by the stock -- by Friday's closing bell, when the options expire. However, even if the security takes a breather, the most the buyers stand to lose is the initial premium paid.

From a broader sentiment standpoint, Friday's preference for calls marked a change of pace in the options arena. 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 of 0.84 ranks in the 69th percentile of its annual range. Or, in simpler terms, option traders have bought to open GOOG puts over calls at a faster-than-usual clip during the past two weeks.

In the same vein, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.95 stands higher than 84% of all other readings of the past year. In other words, near-term options players are more put-biased than usual right now.

Technically speaking, the shares of GOOG have outperformed the broader S&P 500 Index (SPX) by more than 7 percentage points during the past 60 sessions. As such, the equity's Relative Strength Index (RSI) now rests at 73 -- in overbought territory, suggesting a pullback could be in the cards. In fact, the stock is down 1.2% in early action, after analysts at BMO said GOOG has "climbed a wall of worry."


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