Here is how I’m making money on Alphabet (GOOGL) (April 22, 2016)
I want to look a Google ( NASDAQ:GOOGL ). The company reported earning that weren’t that great, at least the market didn’t think so. I had mentioned before, I think I’ve covered this a couple times noting that if you wanted to take a position in Google ( NASDAQ:GOOGL ) you start small or not at all. And then assuming that if the stock pulls back even into the 200-day moving average, then you’re going to go ahead and buy some more at that point that you would fill comfortable doing that, otherwise you don’t hold the stock over earnings. I rarely do, unless it’s in a long-term portfolio, then I basically always do. The company reports earnings, the stock trades down below the 50-day moving average. I’m looking at this stock now as being in jail; it’s just basically in jail. Remember, I think it was back here, or maybe even here, when the company reported that they were kind of splitting up the company and now they wanted to be called Alphabet, which is, I guess, the company formally named Google. The stock has done pretty well since then, but this has been a lot of choppy stuff.
I trade Google ( NASDAQ:GOOGL ) using options. The reason I have these lines here is because this is what I need to happen. Those of you who trade options, you probably know where I’m going with this, but I think there’s a lot of people that don’t, so I just want to share an “iron condor” with you. The idea is this: I think Google ( NASDAQ:GOOGL ) is going to stay range bound within this trading range, even probably a narrower range, into the third week of May, which is when May options expire. And so what I’ve done, rather than buy the stock, it’s $737.00, rather than buy this stock, I want to sell options. The first thing I’ll do is, I don’t think Google ( NASDAQ:GOOGL ) is going to come down to 700.00, that’s below the 200-day moving average, but if it did I would buy some. So I sold puts, I sold May puts at the $700.00 strike price. But then in order to hedge my bets, basically, and also make sure I don’t have THAT much margin being used up on this, I bought a lower strike put. And I forget if it was 690.00 or 695.00, but I bought a lower strike put.
So I’m going to make money because I got a credit, I sold more than I bought. I’m going to make money if Google ( NASDAQ:GOOGL ) just stays ABOVE 700.00, actually a little bit less than that, if it stays above 700.00. If it starts falling below here then I’m losing money. But then I thought, “Well wait a minute, I don’t think Google is going to be coming back to a new high any time soon either. So maybe I’m going to go ahead and sell calls. I’ll sell somebody the right to buy the stock away from me at $770.00.” So I make money from that, because I’m selling to somebody else the RIGHT to force me to sell them some stock. To call it away from me. I don’t get a ton of money for it, because are you really that eager to buy the stock at $770.00, when you can buy it at $740.00 on the open market? Okay, but you’re paying for time. So my bet is, that I don’t think Google ( NASDAQ:GOOGL ) is going to come back up here. So I will SELL that right to somebody, but I’m going to BUY higher strike. I’m going to BUY the 775.00s or the 780.00s just because something might happen, Google ( NASDAQ:GOOGL )might start going to the moon and I don’t want to be obligated to deliver stock at $770.00 when it’s at $870.00. So I will just buy a call at a little bit higher strike. And then if the stock starts trading above this, then I’m losing money.
But here’s the thing, I’m not going to lose money on both trades. One of them is going to be completely green at the end of the option contract, the expiration. The stock can’t end up below 700.00 and above 770.00 at the same time. So I’m going to make money on one of these trades, absolutely. I will make money on both of these trades if the stock stays within this range. I think that’s a pretty good bet. When you just look at the way Google ( NASDAQ:GOOGL ) has been trading for months, and months, and months, it’s basically been in this range.
So what I’ve done is, I’ve figured out a way, and it’s not an original thought, it’s called an iron condor, but I’ve found a trade that works for me on a stock that is just drifting sideways. And frankly, if you’re just buying the stock I don’t know really why you want to do that because you’re not going to make much money on it until it starts trending higher, and it’s really not. So this is a way that you can use options in order to juice you account, and you don’t have to own any stock. By the way you can leg into this too. Meaning you don’t have to sell these puts and sell these calls at the same time. You can sell the puts and then wait for the stock to move favorably and then sell the calls. In other words, you can get a better price for the whole combination here, if you trade it technically and do it at different times, but that’s for another day.