MomentumOptionsTrading.com Midday Update for 4/16/2014
Getting Ready for Google (GOOG)
The bulls are looking to extend their gains and winning streak to 3-straight with another green close. The bears are trying to hold resistance but have done a lousy job and are on the verge of collapsing.
The indexes are dancing with the resistance levels we said to watch for this morning and with Google (GOOG, $543.65, up $7.21) announcing earnings, and April option expiration tomorrow, all signs are pointing toward a week ending pain trade for either the bulls or bears.
The options on Google are expensive to trade but we can use them to predict the possible move shares might make. The company recently split its stock and with shares near $545 we can look at a straddle option trade to see what kind of price movement is being priced in.
The April 545 calls (GOOG140419C00545000, $15, up $4) and the April 545 puts (GOOG140419P00545000, $15, down $5) are evenly priced with premiums at $30 for both options. This means the market is pricing in a 5%-6% price swing. We get this by dividing the premium for both options ($15 + $15=$30) by the strike ($545) prices.
At current levels, this is roughly a $25-$30 move traders are expecting but we believe shares could move 8%-10% on a big earnings beat or miss.
We shy away from trading options that are priced in the double-digits as we like to keep our premiums below $2. We thought it would be a cool way to show you what kind of move Wall Street is expecting in after-hours trading and into Thursday.
The key levels we are watching into the close are Dow 16,350; S&P 1,850; Nasdaq 4,050; and Russell 1,125-1,130. The odds would favor a continued run higher if these levels hold into the close and Google blows away estimates.
As we make the turn, the Dow is up 113 points to 16,375 while the S&P 500 is higher by 13 points to 1,855. The Nasdaq is jumping 35 points to 4,069 and the Russell 2000 is popping a 6-pack to 1,125.
We have updated our current positions. Subscribers, hit the Members Area and stay close to home base for possible Trade Alerts into the close.