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Alphabet Inc (GOOGL) Stock Is Down in a Bullish Market — Opportunity!

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Thanks to the financial media, we can no longer mention Alphabet Inc (NASDAQ: GOOG , NASDAQ: GOOGL ) without talking about the FANG gang that includes Facebook Inc (NASDAQ: FB ), Amazon.com Inc. (NASDAQ: AMZN ), and Netflix Inc (NASDAQ: NFLX ). With the proliferation of the acronym, they now trade as an asset class, which is unfortunate at times. GOOGL is a well-established success story which trades with a cheap price-to-earnings ratio, whereas NFLX, for example, is a bet on future expansion - otherwise it's over-valued.

Alphabet Inc (GOOGL) Continues AI Push, Acquires AIMatter

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However, there are upside on days when NFLX rallies fast and GOOGL stock catches bids in sympathy. But I fear the downside has the potential to be more painful. We've seen Alphabet sell off 4% on bad days, and that is unwarranted without game-changing headlines to Alphabet's business model.

So, in today's bullish equity market, every dip In Alphabet is a buying opportunity. No, I don't like to risk almost $1,000 buying the stock at face value and hope I catch a rally. I prefer to have a cushion to allow for imperfect timing. Rarely do we catch bottoms or tops in stock moves. So I prefer using GOOGL options to implement my bets.

Click to Enlarge I typically sell downside risk on dips to get long the stock. The reason I prefer this is because I would then be long GOOGL with no money out of pocket. In fact I get paid to open the trade. The icing on the cake comes from the fact that I would also have a healthy margin for error.

GOOGL Stock Trade Idea

The Bet: Sell GOOGL Sep $900 naked put and collect $6 per contract to open. Here I have an 85% theoretical odd of the stock staying above my strike, so I can keep the whole premium for maximum gains. But if the price falls below it, I have to own the Alphabet shares and suffer losses below $894.

Selling naked puts in GOOGL is daunting and requires a lot of margin to secure it. So to mitigate the risk I can sell spreads instead.

The Less Aggressive Bet: Sell GOOGL Sep $900/$895 credit put spread where I have about the same chance of success but with much smaller risk. The compromise is not too punishing, since the spread still can deliver 11% in yield.

Unlike buying the shares at these altitudes, these trades make profit without a rally in GOOGL. In fact the stock could fall 7% and I can still win which makes managing the short-term price gyrations easier than having $972 per share at risk.

There are no guarantees when investing in the stock market, so I never bet more than I am willing to lose.

Learn options as easy as 1-2-3 here . Nicolas Chahine is the managing director of SellSpreads.com . As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic .

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The post Alphabet Inc (GOOGL) Stock Is Down in a Bullish Market - Opportunity! appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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