Google (GOOGL) Earnings Preview: Historical Patterns and Option Strategies


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Google ($GOOGL) ($GOOG) Upcoming Earnings Release

Google will release 4th quarter earnings on January 26, 2017 AMC. The company will also host a conference call at 4:30 pm eastern.

The options markets are implying a move of +/- 3.7% based on the at-the-money January 27, 2017 straddle.

The last earnings on October 27, 2016 Google (GOOGL) edged higher 0.3% vs an expected move of +/- 4.8% to close at $819.56. Since the earnings release GOOGL traded as low as $743.59 on November 14, 2016 and recently hit a new 52 week high of $854.50. The stock has been on a steady climb after the new year and now sits 4.2% above its earnings close set Oct 27, 2016.

Option Order Flow Indicates Bullish Sentiment

The open interest in the January 27, 2016 expiration which covers earnings has increased by 87% since January 19, 2017 to 32,707 contracts. The biggest open interest in the 27-Jan-17 expiration is in the $870 Call strike which is 1.75% out-of-the-money and trading around $9.60 in option premium. The implied volatility on the strike has been increasing indicating buying activity. Furthermore, the option volume in the last five days has favored calls to puts with 57% calls trading hands vs 43% puts.

Historical Earnings Moves and Trends

Looking back at the last 6 quarters, GOOGL stock price increased 5 times (5 of 6) after releasing earnings vs only 1 negative move. The average upside move was +5.36%, although notice this is skewed because of a volatile move on July 16, 2016 of +16.3%. The week following post earnings release GOOGL stock performance was disappointing losing ground 66.6% of the time for an average loss of -3.48%.

Option Strategies Around Earnings

The recent option order flow, historical earnings patterns and general market direction signal bullish momentum.

Bull Call Spread

Long 1 Call: 855 Strike @ $16.65Short 1 Call: 857.5 Strike @ $15.30Debit: $1.35

The 855/857.5 ($2.50) call spread is approximately $1.35 using midpoint quote prices. The maximum profit would be $1.15 if GOOGL closes anywhere above $857.50 at expiration translating to an 85% return. If the stock close at $855 or lower the entire premium would be lost and go to the seller. GOOGL would have to rise by at least $1.40 or .0016% from its current price of $856.10 to realize a max gain. Out of the last 6 earnings GOOGL has increased by more than .0016% 5 out of 6 times.

To view option chain for GOOGL click here: https://marketchameleon.com/Overview/GOOGL/OptionChain/