Google report earnings today after hours. The stock has fallen about 5% in last two weeks ever since Chinese started the scare. The attached chart shows a very well defined pattern that has been in tact since March 2009. I am willing to bet that earnings will be good and the pattern will remain in tact. However, given the negative tape in the market, after some knee jerk reactions, the stock is likely to just stay range bound between $550 and $600.
Given the rise VIX today, I believe the IV of high beta stock such as Google will remain elevated in outer months. Thus, I want to do the following Double Diagonal Calendar Spread:
- Buy to open Mar $550 strike puts
- Buy to open Mar $600 strike calls
- Sell to open Feb $550 strike puts
- Sell to open Feb $600 strike calls
The whole trade can be done for a net debit of $9.50 as I write this. The attached hypothetical P&L chart shows break even points at $525 on the downside and $630 on the upside. I like the set up.
Good luck!
