Playing the Expiry for August 20, 2010: Google (GOOG)

It's a new segment in my blog, and hopefully I can continue to do this weekly (or at least monthly). I will have a new layout soon so it should give you a chance to visit it every Thursday before close to make a trade.

With the market having taken a beating today on bad employment news, some stocks have taken a larger drop than need be. Today's focus is on Google [GOOG:NSD].


The following trade was executed today in my account creating a bull call spread on Google, trading at $470.25. I purchased the Aug260 call ($11.00) and sold the Aug270 call ($3.60). The total net debit is $7.40, meaning my break even is $477.40 on the underlying. My reasoning for this trade is a technical one. Google fell below the Bollinger Bands today, which indicates that a technical rebound is more likely than a drop. My trade is not trying to capture a big up move, but a lack of a continued down move. If Google remains at $470.25 (now $471.20 as I write this), I will be able to capture about $250* per contract (or 33% profit), not too bad for a $740 investment for one day.

*The 460 call will gain $0.20 and the 470 call will lose $2.40, netting about $250, allowing for spreads and commission.

As with all trades, profits are not guaranteed and losses may occur. Ensure options trading is suitable for your investment needs and objectives. Talk to a financial advisor if you are always unsure.