Investing with options: Alphabet earnings
Koen Hoorelbeke
Investment and Options Strategist
Summary: This article will explore various options strategies in anticipation of Alphabet Inc.'s upcoming earnings report. We'll outline approaches for both bullish and bearish investors while comparing the risk and rewards to traditional stock buying.
Investing with options - Alphabet earnings
Options strategies vs. conventional stock purchase
1. Bullish outlook - buy call option:
Strategy: Buying a long-term call option
- Instrument: BuyToOpen 1 20-Sep-2024 Call 115 @ $32.75, delta of 0.79
- Premium: $32.75 (debit, per share)
- Premium and risk:
- Premium cost: $32.75 x 100 (per contract) = $3,275
- Max risk: $3,275 (if Alphabet is below 115 at expiry)
- Max reward: Significant (gains rise as Alphabet's stock price rises)
- Breakeven point: $115 (strike) + $32.75 (premium) = $147.75
- Why: A call option allows you to benefit from any upside in the stock with a fraction of the capital required to buy shares outright.
2. Bullish outlook - buy stock using ITM put option
Strategy: Selling an in-the-money put option
- Instrument: SellToOpen 1 27-Oct-2023 Put 140 @ $6.20, delta of -0.72
- Premium: $6.20 (per share)
- Premium and risk:
- Premium cost: $0 (you receive the premium)
- Max risk: $13,380 (if Alphabet falls to zero, adjusted by premium received)
- Max reward: $620 (if Alphabet is above 140 at expiry)
- Breakeven point: $140 (strike) - $6.20 (premium) = $133.80
- Why: This allows you to acquire shares at a discounted rate or pocket the premium if the stock stays above the strike price.
Strategy: Buying a long-term put option
- Instrument: BuyToOpen 1 20-Sep-2024 Put 155 @ $24.35, delta of -0.63
- Premium: $24.35 (debit, per share)
- Premium and risk:
- Premium cost: $24.35 x 100 (per contract) = $2,435
- Max risk: $2,435 (if Alphabet is above 155 at expiry)
- Max reward: Significant (gains rise as Alphabet's stock price falls)
- Breakeven point: $155 (strike) - $24.35 (premium) = $130.65
- Why: A put option offers the potential for profit if the stock declines, akin to short-selling but with limited risk.
4. Bearish/bullish outlook - covered call
Strategy: writing a covered call
- Instrument: SellToOpen 1 03-Nov-2023 Call 144 @ $1.41, delta of 0.20
- Premium: $1.41 (credit, per share)
- Premium and risk:
- Premium cost: $0 (you receive the premium)
- Max risk: Limited (potential loss of stock appreciation above 144)
- Max reward: $141 (if Alphabet stays below 144 at expiry)
- Breakeven point: Not applicable (already own the stock)
- Why: This strategy provides extra income while holding the stock.
- Yield:
- For the next 11 days, the yield is approximately 1.04% [(1.41/135.60)*100].
- Annualized, this comes out to about 34.64%.