12:40pm (EST)
Futures were pointing towards a strong open this morning but took a hit after an unexpected spike in jobless claims and a mixed PPI (Producer Price Index) report.
Initial Claims came in at 380,000, up 13,000, versus expectations for 355,000, while Continuing Claims came in at 3.25 million versus a forecast for 3.33 million. Producer prices for the month of March were flat versus calls for an increase of 0.3%. The core reading was up 0.3% versus the expected increase of 0.2%.
In earnings news, Google (GOOG, $644.52, up $8.56) will report their quarterly numbers after the close and their results will likely have a huge impact on where Tech and the Nasdaq go from here. In January, shares fell from $639 to $585 after the company disappointed Wall Street with their results but in October 2011, shares rallied from $558 to $591, after Google announced better-than-expected earnings.
In July of 2011, shares of Google moved from $529 to $597 and in April of last year, shares fell from $578 to $530. Given the last 4 quarterly results, there is no reason to not believe shares won’t move another $50+ in after-hours trading tonight and on Thursday.
The near-term out-of-the-money “normal” options are expensive to trade on Google but there are WEEKLY options for those who want some action.
The April 700 calls (GOOG120413C00700000, $2.10, up $0.70) could be used to play a run to $700 while the April 600 puts (GOOG120413P00590000, $3.75, down $2.65) could be used for a possible break below $600. As you can see, these options are still pretty expensive and they expire THIS Friday.
If we used both options together as a “strangle option trade”, the total cost would be $5.85 which means we would need Google to be at $705 or better for us to be profitable if shares rise on an earnings beat. We would need the stock to test $595 or worse if there is a miss or lowered guidance. While we like the setup, we don’t like the risk/ reward because a 10 contract trade on each side would cost nearly $6,000. One contracts of each would cost $585.
We normally like to trade 10 or 20 contracts for all of our positions and sometimes we will trade 30 or 40 depending on price. However, we never like to leverage more than $1,000-$2,000 on any one position so this is what we mean when we say the options or premiums are expensive.
We are going to watch from the sidelines as Google takes the field after the close. While we do think a 7%-8% move is possible, anything less would crush the premiums if shares stayed in between $600-$700.
As far as the market, the Dow is up 147 points to 12,952 while the S&P 500 is higher by 15 points to 1,383. The Nasdaq is showing a 35 point pop and is at 3,051.
We opened 3 new trades today to go along with our current option plays so let’s go see where we are at. Subscribers, check the Members Area for the latest updates.
