Filed under: Analyst reports, Google (GOOG), Apple Inc (AAPL), Research in Motion (RIMM), Options, Technical Analysis
CNBC’s Jim Cramer has noticed that when the market has a tough day, mutual fund managers still like to buy certain momentum stocks like Google Inc. (NASDAQ: GOOG), Apple (NASDAQ: AAPL), and Research in Motion (NASDAQ: RIMM). They do this to keep these stocks’ prices up which will reflect positive performance for their fund. Cramer thinks these stocks will not go down because the buyers will not quit. He suggests buying calls deep in the money, but we like selling puts instead. This way, your profits are locked in if the stock rises, stays flat, or even drops a little. If you are inclined to agree, then it could be a good time to get into a bullish hedged trade on GOOG.
After hitting a one-year low of $437.00 in March, the stock hit a one-year high of $747.24 in November. GOOG opened this morning at $692.73 and so far has hit a low of $687.50 and a high of $693.00. As of 10:45, GOOG is trading at $691.74, up $7.58 (1.1%). The chart for GOOG looks bullish but deteriorating, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
If you agree with Cramer, then for a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $610 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in less than 3 weeks as long as GOOG is above $610 at December expiration. Google would have to fall by more than 11% before we would start to lose money.
GOOG hasn’t been below $610 since early October and has shown support around $680 recently. This trade could be risky if the momentum comes out of this stock, but even if that happens, there should still be some support around the $625 level.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in GOOG, AAPL or RIMM.
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