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Smart Investor - Make your Alphabet (GOOGL) investment work harder with options
Summary: Investors holding Alphabet (GOOGL) shares can generate additional income using a covered strangle, a strategy that combines a covered call and a short put to capture premium while maintaining stock exposure. This approach allows investors to earn a 2% yield in under 40 days, with the potential to buy more shares at a discount or sell at a profit if GOOGL moves beyond predefined price levels at expiry.
Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks.
Make your Alphabet (GOOGL) investment work harder with options
Alphabet (GOOGL) investors have experienced a volatile ride following the company’s latest earnings release. Despite relatively strong financial numbers, the stock reacted negatively, pulling back from recent highs. The weekly chart shows that GOOGL remains in an uptrend but has faced some resistance after earnings, with the price currently hovering near $185.34—still above its 50-week moving average of $170.71.
For investors who are moderately bullish but looking to generate additional yield, options strategies present an opportunity. One such approach is the covered strangle, which can provide extra cash flow while maintaining exposure to potential upside.
Important note: The strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.
The covered strangle: Enhancing yield on GOOGL
The covered strangle is a combination of a covered call and a short put. This strategy works well for investors who already own GOOGL shares and want to generate premium income while being open to acquiring more shares at a discount.
Structure of the trade:
- Sell the 210 call (March 21, 2025 expiry) → This generates premium income but caps upside if GOOGL rallies above $210.
- Sell the 175 put (March 21, 2025 expiry) → This earns additional premium but obligates the investor to buy GOOGL at $175 if the stock declines.
- Total premium received: $3.40 per share (~2% yield in less than 40 days)
Key benefits and risks:
- Generates extra cash flow while waiting for a price move.
- If GOOGL stays between $175 and $210, the investor keeps the full $3.40 premium.
- If GOOGL drops below $175 at expiry, the investor effectively buys more shares at $171.60 (strike minus premium), assuming additional downside risk.
- If GOOGL rises above $210 at expiry, the investor sells shares at a higher price, securing gains but limiting further upside.
Why now? Elevated implied volatility
GOOGL's implied volatility (IV) currently sits at 26.92%, with an IV rank of 33.12%. This suggests that options premiums remain relatively elevated, making premium-selling strategies attractive. By utilizing a covered strangle, investors can capitalize on this elevated IV to enhance their returns while managing risk exposure.
Alternative strategies for bullish & bearish investors
For investors considering other approaches, two additional strategies provide different risk-reward profiles:
Bullish: Buy a LEAP call – Purchasing a long-term call option (e.g., expiring in 2026) allows investors to maintain upside exposure with limited risk while avoiding the need to own shares outright.
Bearish: Buy a put – Acquiring a put option with an expiration far enough in the future provides downside protection or a speculative bearish bet on GOOGL’s price decline.
Conclusion: Yield enhancement while staying invested
The covered strangle provides an attractive opportunity for investors looking to generate additional yield while maintaining exposure to Alphabet. If GOOGL remains within a reasonable range, investors stand to collect the full premium, adding to their returns. If the stock moves significantly, they either take profits at a higher price or acquire additional shares at a discount—both favorable outcomes for long-term investors.
For those already holding GOOGL, this strategy offers a practical way to enhance returns in a neutral to slightly bullish market environment while managing potential risks effectively.
| Check out these guides and case studies: |
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| In-depth guide to using long-term options for strategic portfolio management Our specialized resource designed to learn you strategically manage profits and reduce reliance on single (or few) positions within your portfolio using long-term options. This guide is crafted to assist you in understanding and applying long-term options to diversify investments and secure gains while maintaining market exposure. |
| Case study: using covered calls to enhance portfolio performance This case study delves into the covered call strategy, where an investor holds a stock and sells call options to generate premium income. The approach offers a balanced method for generating income and managing risk, with protection against minor declines and capped potential gains. |
| Case study: using protective puts to manage risk This analysis examines the protective put strategy, where an investor owns a stock and buys put options to safeguard against significant declines. Despite the cost of the premium, this approach offers peace of mind and financial protection, making it ideal for risk-averse investors. |
| Case study: using cash-secured puts to acquire stocks at a discount and generate income This review investigates the cash-secured put strategy, where an investor sells put options while holding enough cash to buy the stock if exercised. This method balances income generation with the potential to acquire stocks at a lower cost, appealing to cautious investors. |
| Case study: using collars to balance risk and reward This study focuses on the collar strategy, where an investor owns a stock, buys protective puts, and sells call options to balance risk and reward. This cost-neutral approach, achieved by offsetting the cost of puts with the premiums from calls, provides a safety net and additional income, making it suitable for cautious investors. |
Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Bank's Terms of Use you will find more information on this in the Important Information Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Bank's website.