Google Option Trade Offers Wide Profit Zone, 31.6% Return

Alphabet (GOOGL) is showing high implied volatility with a reading of 34.275 compared to a 12-month low of 20.47% and a 12-month high of 39.23%.

That gives Google stock an IV percentile of 88% and an IV rank of 73%.

↑ X NOW PLAYING What Is An Iron Condor?

High volatility can mean it's a great to time trade iron condors, because we can place our short strikes much further away from the market than we normally would.

Let's look at how we might set up an iron condor on Alphabet. An iron condor can be set up via a combination of a bull put spread and a bear call spread.

First, we take the bull put spread. Using the Feb. 21 expiry, we could sell the 175 put and buy the 170 put. That spread could be sold for around $0.50.

Then the bear call spread, which could be placed by selling the 220 call and buying the 225 call. This spread could be sold for around $0.70.

In total the iron condor will generate around $120 in premium.

Wide Profit Range For Google Trade

The profit zone ranges between 173.80 and 221.20. This can calculated by taking the short strikes and adding or subtracting the premium received.

This is quite a wide range for a stock like Alphabet.

Because both spreads are five points wide, the maximum risk in the trade is 5-1.20 x 100 = $380.

Therefore, if we take the premium ($120) divided by the maximum risk ($380), this iron condor trade has the potential to return 31.6%.

If price action stabilizes, then iron condors will work well. However, if Alphabet makes a big move, the trade will suffer losses.

Managing Google Stock Trade

One way to set a stop loss for an iron condor is based on the premium received. In this case, we received $120 so we could set a stop equal to the premium of $120.

Note that Alphabet is due to report earnings in early February, so this trade would have earnings risk if held through that time.

According to the IBD Stock Checkup, Google stock ranks No. 1 in its industry group. It has a Composite Rating of 98, an EPS Rating of 97 and a Relative Strength Rating of 85.

Please remember that options are risky, and investors can lose 100% of their investment.

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ

YOU MIGHT ALSO LIKE:

As Datadog Licks Wounds, Option Trade Could Return 33% By Month's End

Coinbase Stock Today: How We Adjusted This Bull Call Spread

Tesla Stock Today: This Bull Put Spread Offers A $125 Booty Right Now

Lululemon Option Trade Can Generate $720, But Beware Of This Risk