[Options] Risk Reversal -- Google it.

Sean McLaughlin
August 30, 2023

[10/19/23 Update: moved stop to 125]

We're adding another bullish leg to an existing position we already have on the books in Google.

In early May, we purchased December 120 calls that have performed nicely for us. In fact, we already sold half of our position and are #FreeRiding on the remaining portion of that initial trade. We can't lose!

Given the price action and relative strength we've seen in $GOOG this summer, we're ready to put on another fresh position to take advantage of even more upside.

Check out this chart:

The resilience $GOOG has displayed during the recent market correction, and its quick rebound off the lows gives us confidence that $GOOG is setting up for a big run back towards all-time highs.

So we're going sell some puts to help finance the cost of a long calls trade that will position us until March.

Here's the Play:

I like entering a $GOOG March 125/150 Bullish Risk Reversal for an approximately $2.00 net debit. This means I'll be selling the March 125 puts short and buying an equal amount of March 150 calls:

The naked puts in this position means we're exposed to theoretically unlimited risk. Therefore, I'll keep my risk management tight. Any $GOOG closing price below $125 per share at any time during my hold is my signal to get out and protect against any further erosion of my trading capital.

If $GOOG never follows through, but neither trips our stop loss level, then the most we'll lose in this trade is the debit we paid today. So I'll size my position according to the debit at risk today.

If $GOOG continues its leadership and breaks out above our long calls strike (150), I'll look to book some profits by closing half of my long calls. I'll leave the short puts on since they will be working nicely in this situation.

If you have any questions on this trade, please send them here.

If you missed last week’s video Jam Session, you can catch a replay of it on Stock Market TV.

~ @OptionsSean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7991.

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