If you think that the outcome of the earnings publication, along with the outlook for the coming quarter, might have a negative impact on the price of GOOGL stock, in the coming days, then you could consider a bearish credit call spread with nearby expiration.
This strategy involves selling a call option at a certain strike price and buying another call option at a higher strike price. Both options have the same expiration date. This strategy is used when the trader expects the underlying stock to fall moderately within a certain range (staying below the lower strike)
- Buy to Open GOOGL 28-Jul-23 125 Call
- Sell to Open GOOGL 28-Jul-23 120 Call
This is a Bearish Credit Call Spread on GOOGL with an expiration date of July 28th, 2023. Here's a breakdown of the trade:
1. Strategy: A Bearish Credit Call Spread is a bearish strategy that involves buying a call option and selling another call option with a lower strike price on the same underlying asset and with the same expiration date. This strategy is used when the trader expects a moderate decline in the price of the underlying asset.
2. Trade Setup: In this case, the trader is buying to open a call option on GOOGL with a strike price of $125 and selling to open a call option with a strike price of $120. Both options expire on July 28th, 2023.
3. Premium and Risk: The trader is receiving a net premium of $2.37 per share (approx. the difference between the mid prices of the two options), for a credit of $237 (since each contract represents 100 shares). This is also the maximum profit of the trade. The maximum risk is $263, which is the difference between the strike prices ($5) minus the net premium received ($2.37), multiplied by 100.
4. Breakeven Point: The breakeven point at expiration is $122.37, which is the lower strike price plus the net premium received.
5. Probability of Profit (POP): The estimated POP is 62.74%. This is a rough estimate of the chance that the trade will be profitable at expiration, based on the position's delta.
6. Implied Volatility (IV) Rank: The IV Rank is 45.02%, which is above 20% which we use as an indicator on whether to sell or buy premium.
7. Days to Expiration (DTE): There are 4 days left until the options expire.