Options Trading: Google (GOOG) Going to $600
A little over a year ago I went to one of those free options trading seminars provided by companies that want you to sign up for their coaching or options training training.
The concept they were teaching was day trading and so it did not interest me very much, but a couple things the speaker said were very interesting. The guy’s name was Tom Busby.
He said that once a stock breaks a hundred $ level for the first time it zooms up 10%. For example, once a stock breaks through $100 it is going to $110. When it breaks through $200 it is going to $220, etc.
I had heard this before somewhere so I started looking it up. It turns out that Jesse Livermore mentioned this in one of his books. Livermore was probably the best trader of all time.
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So now with two reference points I decided this was something worthy of looking into. So I started doing some research. It turns out, that this theory/rule is true.
I checked with over 40 companies that broke through either $100, $200, or $300 and 84% of then did eventually hit $110, $220, or $330. The average time it took was 4 months. Some did it much faster and the slowest took 8 months, but it got there.
One thing I noticed is that this does not work all the time. It works only in bull markets. And this was also a limited sample.
If this theory holds, then Google (GOOG) is poised to hit $660, and Apple (AAPL) is going to hit $220. As I write this, Apple (AAPL) is already above $209 so $220 is not much of a stretch.
How should you play this?
- You can buy the stock and wait.
- You can buy a call option on Google (GOOG) at 660 with at least 4 months of time left to expiration.
- You can sell puts month after month until Google (GOOG) starts to decline.
All 3 methods have their pluses and minuses. I am already long the stock, and have sold the Jan 560/570 put spread. As long as the bull market stays intact, I can sell more puts. When Google (GOOG) breaks below the 50 day moving average, I plan on selling my stock and looking for another company to play.
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Nice analysis. But I don’t understand when you say-
“I am already long the stock, and have sold the Jan 560/570 put spread.”
Would you call this stratgey a covered put?
Thanks.
No, they are two seperate trades in two different accounts. You can do either or both. I have been long the stock for a while and continue to be so. Selling the puts though lets me take advantage of the situation and make a decent percentage/month
Selling 10%-away-striking-price put spreads on strong uptrend stocks add income.Does it also make sense, in the case of GOOG, sell a call spread of 680-690,so that the trade becomes an iron condor to get additional income or simply sell 680 call ( if you are ok to have the stock assigned ) ?
I would not sell calls on a stock that is rapidly moving higher. Espcially with earnings on Jan 21. I expect it to run up into earnings and then have them report a good number.
I used to be the marketing manager at a company and am very familiar with online marketing. Google is still the #1 marketing channel and is only getting stronger. Yahoo and MSN could compete but their systems are just so hard to use to set up your ads and such that it is very frustrating – to the point were many marketers i know dont even bother with Yahoo and MSN.