Options Bulls Blast Alphabet Stock Before Earnings

The Google parent will report earnings after Monday's close

Jul 20, 2018 at 2:11 PM
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Alphabet Inc (NASDAQ:GOOGL) kicks off a busy week of FAANG earnings, with the Google parent set to unveil its quarterly results after Monday's close. Ahead of the event, Deutsche Bank lifted its GOOGL price target to $1,350 from $1,225 -- a nearly 13% premium to last night's close -- saying the stock is attractive at current levels, but cautioned about "slightly tricky" second-quarter revenue for the tech company.

It's been a toss of the coin as to whether GOOGL's earnings reaction has been positive or negative over the past eight quarters, split evenly at four of each -- though the two most recent reactions have resulted in next-day moves lower for the stock. On average, the equity has moved 3.2% the day after earnings over this two-year time frame, regardless of direction. This time around, the options market is pricing in a bigger-than-usual 5.5% single-session post-earnings swing.

Recent options activity suggests speculators are positioning for a move to the upside. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day call/put volume ratio of 2.12 ranks in the 94th annual percentile, meaning calls have been bought to open over puts at a quicker-than-usual clip.

This optimism is seen outside of the options pits, too, where 27 out of 29 brokerages maintain a "buy" or better rating on GOOGL, with not a single "sell" on the books. However, there's certainly room for more analysts to lift price targets on the FAANG stock, considering the average 12-month price target of $1,286.27 is a slim 7.3% premium to current trading levels.

Meanwhile, short sellers have been throwing in the towel on their bearish Alphabet bets. Short interest plunged 20.8% in the latest reporting period to 2.43 million shares -- just 0.4% of GOOGL's available float. It would take shorts just about a day to cover these remaining bearish bets, at the average pace of trading.

On the charts, Google stock has been chopping higher since a successful test of the millennium mark in late March -- up almost 22%. More recently, a late-June bounce off its 40-day moving average has GOOGL up 6.3% so far in July, and fresh off Wednesday's record high of $1,221.59.

googl stock dailyprice chart on july 20

 

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