I Googled This Trade Idea

Sean McLaughlin
April 15, 2020

Say what you will about stock market action since the equities bottom was put in on March 23rd, but either way you can't not be impressed.

Do we go higher from here?

I don't know the answer (hint: neither do you), but I do know that if we do, we're going to be continually led by the leaders in this bounce so far. And one of those leaders is the stock who's company everyone uses -- in some way -- whether you realize it or not: Google.

JC shared this chart during the recent All Star Charts monthly conference call:

What's important to note is $GOOG's recovery back above a support level that was former resistance for two years from 2017-2019. The fact that $GOOG is back up above this level is bullish. So bullish in fact that ASC has a possible price target that takes $GOOG back above all-time highs!

Of course, options premiums are still elevated in relative terms, and $GOOG is a very high-priced stock. So to minimize my risk, I'm going to utilize a call debit spread to keep my costs manageable while trying to take a bite out of possible move back to highs.

Here's the Play:

I'm buying a $GOOG June 1350/1400 Bull Call Spread for approximately $13.25. This means I'll be long the 1350 strike calls and short an equal amount of 1400 strike calls for a net debit. This net debit represents the most I can lose.

My plan is to double my money in this trade. The most this spread can be worth is $50.00 (1400-1350 strikes). But I'm not interested in holding all the way to June expiration if I can avoid it. Instead, I'll be looking to close this trade when I can sell the entire spread for about $27.00 or better. I'll let somebody else sweat out the hold for any  possible remaining profits.

On the flip side, if $GOOG reverses course and gives up the bounce, I'll look to close this spread for whatever I can salvage if $GOOG closes below $1100 per share.

What I like about this trade is we don't need $GOOG to trade all the way back to all-time highs for us to make money. We just need it to threaten too. That'll likely be good enough for our position.

All Star Options subscribers who have any questions on this trade can email me here.

~ @chicagosean

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