Short-Term Options are Cheap on This FAANG Stock

Low volatility expectations are being priced into near-term GOOGL contracts

Sep 15, 2017 at 1:22 PM
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Open interest levels on Alphabet Inc (NASDAQ:GOOGL) have been trending higher throughout the year, alongside the FAANG stock's price. Currently, there are 143,461 calls and 143,209 puts open on GOOGL -- in the 97th annual percentile. What's more, now is an attractive time to buy short-term options on the Google parent, which will host a smartphone event in less than three weeks.

Open interest levels topped out 12-month highs of 157,696 calls and 157,903 puts on July 28, while call open interest hit a 52-week low of 68,811 contracts on April 3, and puts open interest tagged its annual low of 65,283 contracts on Jan. 23.

The October 940 and 960 calls make up the stock's top two open interest positions, where 4,611 and 5,072 contracts currently reside. Data from the major options exchanges confirms most of the lower-strike calls were bought to open, while there has been a mix of buy- and sell-to-open activity at the higher-strike calls.

Those initiating long calls expect Google stock to close north of the strikes by the close on Friday, Oct. 20, when back-month options expire. Those writing the October 960 calls, meanwhile, are betting on the strike to serve as a ceiling for the shares over the next five weeks.

With Alphabet earnings not due until the evening of Wednesday, Oct. 25, it's still an attractive time to purchase premium on short-term options. Specifically, the equity's 30-day at-the-money implied volatility of 15.2% ranks in the 26th annual percentile, indicating lower-than-usual volatility expectations are being priced into near-term contracts.

On the charts, the share are up 18% year-to-date. More recently, though, the stock stalled since hitting a record high $1,008.61 on June 6, though its most recent pullback from the millennium mark found a familiar floor at the 120-day moving average. And while the shares are down 2% so far this month, they have historically been one of the best stocks to own in September.

Today, GOOGL stock is trading down 0.5% at $935.77, after a gender pay discrimination lawsuit was filed against Google yesterday. Traders are also reacting to a Bloomberg report that Alphabet could possibly take a $1 billion stake in ride-sharing service Lyft, and news Google has sent out invitations for a smartphone event on Wednesday, Oct. 4 -- though details of the new Pixel weren't released.

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