January 20, 2011 / 8:28 PM / 9 years ago

Options investors see Google moving 5 pct post-earnings

* Google to report earnings after market’s close

* Options on Google pricing in 5 pct move post-earnings

* Analysts expect $6.06 bln in Q4 net revenue

By Angela Moon

NEW YORK, Jan 20 (Reuters) - Options investors are pricing in a potential move of about 5 percent for Google’s stock after the company reports earnings after the bell on Thursday.

Google Inc (GOOG.O), the world’s No.1 Internet search engine and one of the most closely watched stocks in the options market due to its volatile earnings play, is expected to report a 22 percent jump in fourth-quarter revenue, thanks to a strong holiday season. For full preview story, see [ID:nN20114431]

The stock was down 0.5 percent at $628.48 in late afternoon trading, with less than a hour to go before the closing bell.

“Compared to the 11.2 percent move in the stock after earnings in the previous session and a 7 percent move prior to that, the expected move this time is a bit subdued,” said Steve Claussen, chief investment strategist at online brokerage OptionHouse.com in Chicago.

Overall Google options volume was 2.3 times greater than average daily turnover with about 51,000 puts and 75,000 calls traded by 2:46 p.m. EST, according to options analytics firm Trade Alert.

Sentiment was mixed.

“Right now, the bullishness and the bearishness are almost identical,” said Randy Frederick, director of trading and derivatives at Schwab Center for Financial Research in Texas, Austin.

But Frederick said the most active options on the stock were the January $630 and $650 calls, suggesting short-term bets are made on the stock to move up from the current price by this Friday, when January options expire after the close.

Equity call options convey the right to buy a stock at a fixed price any time until expiration, while puts give the right to sell the stock at a preset price up to a certain date.

TECHNICALS SIGNAL ROOM TO RALLY

Google shares underperformed the market in 2010, but have gained roughly 6 percent in the past three weeks as investors anticipate that Google will benefit from healthy online advertising spending.

But technical charts on Google shares show the stock has room to rally further if it moves above the $645 area.

“The upside potential for the formation, if it completes, would be the $820 area ... but if the (earnings news) is not as positive as hoped, a downside objective to keep in view would be the big pivot low at $553.51,” OptionMonster analyst Bryan McCormick said.

Analysts polled by Thomson Reuters I/B/E/S expect Google to generate net revenue, which excludes fees that Google pays to partner Web sites, of $6.06 billion in the fourth quarter, with earnings per share of $8.09, excluding certain items.

Google has beaten Wall Street’s revenue expectations for the past five consecutive quarters, missing profit targets only once in that period. (Reporting by Angela Moon in New York; Additional reporting by Doris Frankel in Chicago; Editing by Jan Paschal)

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