If there was ever a time to be a member of Explosive Options trading service, it was last week. Google soared to new heights, hitting a new all-time high since early 2014 – and our members were ready to take advantage of it. Google was part of the biggest trade we have had in two years, so it’s one I’ll definitely remember.
The Scenario: Stock Market Action
On July 16, Google’s Q2 earnings were released after the close, and though revenue was a bit light, bottom line earnings were solid. Additionally, investors were relieved to hear that the new CFO is in control of expenses, an issue that has long been a thorn in the side of Google shareholders.
The stock moved to new highs the following day, and it appeared that there could be more upside to come. On Friday, Google enjoyed its biggest gain in years and vaulted up to to the second biggest market cap company behind Apple. (The last enormous move for Google was about 2 1/2 years ago, so its time had come.)
Why We Got On Board:
While we recognized the strong fundamentals, we saw something very positive in the charts/technicals prior to the earnings release that made the decision to get on board a bit easier.
As you know, we look for technical trends and indicators to help us understand a stock’s future direction. Though a chart is a look back at history, we can discern patterns that stack the odds in favor of a directional bet. This process is certainly not 100% accurate, but the probabilities are strong if we follow the patterns seen on the chart.
On July 10, I presented Google’s chart to realmoney.com and trifectastocks.com as a “chart of the day.” This was my first clue that something may be happening. The stock had been building up some compression for months, moving in a narrow channel within a wider one (take a look at the chart to the right); it appeared the stock was just marking time.
The MACD turned up recently, just in time for the stock’s move up toward $560 – which was rejected soundly. Yet, the stock did not break down. Volume trends turned positive in July, and even during the market meltdown courtesy of Greece and China, Google held up fairly well.
One of the simplest options trading strategies is a straight call or put play. If bullish, we want to be long calls, but Google is a rather expensive stock with pricey options, complicated by the fact that implied volatility typically rises in front of an event such as earnings.
With these conditions, getting in on a Google trade was not easy. We already had a position on July monthly 570 calls and were looking another play. However, we were comfortable adding an out of the money play to the Explosive Options portfolio; specifically, the July 24 (weekly) option long at $7 (see the alert I sent to members).
By the following Tuesday, July 14, Google had vaulted higher on strong turnover, and with earnings due out later in the week, it appeared many traders were positioning for a substantial move up. Our new calls were now up nearly 200% in just three days, so as we always like to do, we took our risk off the table to stay in the game. We sold this call for a very nice gain and rolled up to a higher strike, removing our risk entirely. If the trade were to flop, we still would end up a winner. We ended up buying the July 24 weekly 600 strike call at 5.10. Again, take a look at the alert.
At this point, we were long a call going into earnings. That may bother some traders (due to the expected price action/volatility that we see after a report), but since we had a “free trade” on the table, we were in a good position – no matter what the result.
Our Google Trade Results:
Fortunately, we struck gold as Google hit pay dirt after the close. On Friday we saw the stock making its move toward new ground. The stock soared over 16% that day, and our calls went up an astounding 15x! That is an absolute return, folks!
Just buying ONE contract at 5.10 for 510 bucks would have netted you over $8,100 in profits or an astonishing 1,600% return!
Of course, this was on top of the stellar gain earlier in the week.
Prior to the earnings I examined the chart and noticed a very familiar and distinct pattern we have talked about lately – the fat tail trade. Google was set up perfectly for upside on this basis alone. Take a look at the charts prior to earnings and then after earnings, and you’ll see that fat tail. Knowing this pattern was a great guidepost.
We exited our trade on the July 24 Google calls on Friday, completely satisfied in taking these off the table. We currently have no position in Google.
The lesson here is this: Pay attention to the charts and technicals and the time-tested clues that they present. The gain we enjoyed with Google last week is extraordinary and rare, but the opportunity is out there. Patterns repeat themselves (Google made a similar move in October 2013). Keep your eyes peeled, because this will happen again in the future.
Want to be ready to take advantage of the next week? Join the Explosive Options trading service today!
