Option Trade 
Alphabet Inc (NASDAQ:GOOGL) Calls 
Thursday, 28th July, 2016

** OPTION TRADE: Buy the GOOGL AUG 19 2016 800.000 call at approximately $6.90. Place a pre-determined sell at $14.00.

Note: No protective stop losses added -- but if you wish to do so make it $2.75.

by Ian Harvey

July 28, 2016

Alphabet Inc (NASDAQ: GOOGL), a collection of Companies, is set to release second-quarter 2016 results today, July 28, 2016 after the market close, This will mark the Google parent's third time breaking out its performance on a segment basis, so now is great opportunity for this options trade.

For perspective, last quarter didn't sit particularly well with the market; Alphabet shares plunged around 5% the day after its Q1 report when it technically fell short of Wall Street's fickle near-term expectations, despite Alphabet CFO Ruth Porat calling it a "tremendous start to the year."

"We're thoughtfully pursuing big bets and building exciting new technologies, in Google and our Other Bets, that position us well for long-term growth," added Porat.

To that end, keep in mind Alphabet doesn't typically offer specific quarterly financial guidance. But as a point of reference, analysts' consensus estimates this time call for second-quarter revenue to increase roughly 17.1% year over year, to $20.76 billion, and result in a 14.9% increase in earnings per share, to $8.03.

Google parent Alphabet Inc. excels at many things. One at which it doesn't: playing Wall Street's expectations game.

Underneath those rosy figures is a solid core business. Google's lucrative search-advertising business is humming along and it is capitalizing on the shift from desktop to mobile use.

Furthermore, to the delight of some shareholders, Alphabet is actually showing some spending restraint, at least by its own standards. Paid clicks, which measure the number of clicks Google gets on its ads, are forecast to have increased by 25% in the second quarter from a year ago.

Google will likely get more than half of its advertising revenue from mobile this year for the first time, according to data provider eMarketer. And overall, it has cornered about one-third of the global mobile-ad market, nearly double that of the second-biggest player, Facebook Inc., eMarketer estimates.

This all comes as spending appears to be in check. Total operating expenses were about 36% of net revenue in the first quarter, in line with its average over the past few years. More significantly, capital expenditure is expected at 15% of net revenue this year, down from about 20% in 2014.

After so much talk of science projects such as driverless cars and robots, that restraint may soon get investors' attention. After a sharp rally in 2015, Alphabet has struggled this year relative to rivals. Fetching just 20 times projected earnings over the next 12 months, its multiple is identical to the Nasdaq Composite and cheaper than Facebook's.

Alphabet Inc. has a 12 month low of $593.09 and a 12 month high of $810.35. The stock’s 50 day moving average price is $724.99 and its 200 day moving average price is $734.60. The company has a market cap of $521.12 billion and a P/E ratio of 30.89.

Analysts Opinions are Positive

Cantor analyst Youssef Squali is bullish on Google’s parent company Alphabet Inc. As such, Squali reiterates a Buy with a price target of $940, a 24% increase from where the stock is currently trading.

Currently, Squali’s expectations run just under consensus for net revenue of $16,575.5 million against consensus estimate of $16,852.7 million, and earnings estimates of $8,314.4 million compared to $8,348.8 million. Meanwhile, the analyst’s NEPS estimate is just under the Street’s of $8.00 at $7.97. With an optimistic forecast, Squali comments, “We believe results will be driven by Search and Display on O&O sites in the U.S., with tailwinds from continued mobile search momentum. PLAs, programmatic, and video should also be major revenue drivers.”

So far, multiple SEO checks have demonstrated lowered rates in the search engine’s overall advertising. Still, Squali finds growth continues to be steadily in double-digits. Even consensus estimates for third quarter expect future growth, with net revenue of $17,562.5 million, EBITDA of $8,647.6 million, and NEPS of $8.35. Squali contends that especially with Google Shopping Product Listing Ads rising and a demand for heavy investments in areas such as GCP and Other Bets, Google will be able to overcome its weaknesses.

Also, Alphabet Inc. has been assigned a $810.00 price target by investment analysts at Goldman Sachs Group Inc. in a report released on Wednesday. The brokerage presently has a a “buy” rating on the stock. Goldman Sachs Group Inc.’s price target points to a potential upside of 9.91% from the company’s current price.

Also, several other equities research analysts have recently commented on the company.

• TheStreet raised Alphabet from a “hold” rating to a “buy” rating in a report on Monday.

• JPMorgan Chase & Co. set a $920.00 target price on Alphabet and gave the company a “buy” rating in a report on Tuesday, July 12th.

• Pivotal Research reaffirmed a “buy” rating and issued a $1,000.00 target price (up from $970.00) on shares of Alphabet in a report on Tuesday, July 12th.

• Finally, Societe Generale set a $910.00 target price on Alphabet and gave the company a “buy” rating in a report on Thursday, July 7th.

Four equities research analysts have rated the stock with a hold rating and forty-six have given a buy rating to the company’s stock. Alphabet presently has a consensus rating of “Buy” and an average target price of $904.84.

Harvey’s Options Volatility Indicator


It is possible that Alphabet won't go out of its way to appease the market's short-term demands. As long as Alphabet's core Google business continues to thrive, enabling it to continue advancing its early stage ambitions in Other Bets, it is pleasing enough where Alphabet stands at the moment.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the GOOGL AUG 19 2016 800.000 call at approximately $6.90. Place a pre-determined sell at $14.00.

Note: No protective stop losses added -- but if you wish to do so make it $2.75.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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