NEW DIRECTIONAL PUT PLAYS

Google Inc. - GOOG - close: 631.75 change: -7.88

Stop Loss: n/a
Target(s): n/a
Current Option Gain/Loss: see below
Time Frame: 1 Day or 1 month
New Positions: Yes, see below

Company Description

Why We Like It:
Tonight I have a special one-day trade for you. I'm listing this in the PUTS section of the newsletter because we don't have a "Strangle" section and the other play tonight is a put.

GOOG is due to report earnings tomorrow night (Thurs, Jan. 20th) after the closing bell. Odds are really good that the stock will see a big move on Friday morning. January options expire after the close on Friday. This provides a unique event for us to play a big move in GOOG with very cheap options. Granted there is a high-risk of our options expiring worthless so consider this a very speculative play.

GOOG reports earnings after the closing bell tomorrow (Thursday). We want to open positions at the close on Thursday. Here's our challenge. We don't know where GOOG will close on Thursday. Given the sell-off afterhours tonight (Wednesday) in the tech sector GOOG could be a lot lower tomorrow. I am suggesting that wherever GOOG closes at on Thursday we want to buy our strangle position (long both a call and a put) at strikes $50 out of the money.

Here's an example. If GOOG closes at $630 tomorrow, then we want to buy the January $680 call and the January $580 put (at current values that's about $3.30). With only two days left before January options expire these options should be worth even less near Thursday's closing bell. If GOOG closes at $600 tomorrow then we want the January $650 call and the January $550 put. You can adjust these strikes based on how much you're willing to gamble (and this is a gamble). We're betting GOOG will see a big move on Friday morning.

EXIT PLAN: We want to exit on Friday morning at the open. I'm expecting GOOG to gap open one way or the other. Nimble traders can hang on and choose when to exit based on how GOOG is trading. If GOOG does NOT see a big enough gap on Friday morning our option values are going to vanish and we will probably see a 100% LOSS!

I am suggesting the SAME TRADE with February options for those not willing to place a one-day bet on GOOG's post-earnings move. Pick strikes that are $50 out of the money. See below:

Remember - open these at the close on Thursday. We'll update our entry prices tomorrow.

STRANGLE TRADE: Buy an out of the money CALL and PUT

STRANGLE #1 (January options) - Adjust these strikes so they are $50 OTM

Buy the 2011 January $680 call (GOOG1122A680) current ask $2.10

- AND -

Buy the 2011 January $580 put (GOOG1122M580) current ask $1.25


STRANGLE #2 (February options) - Adjust these strikes so they are $50 OTM

Buy the 2011 February $680 call (GOOG1119B680) current ask $7.00

- AND -

Buy the 2011 February $580 put (GOOG1122N580) current ask $5.90

Annotated Chart:

Entry on January 20th at $ xx.xx
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on January 19th, 2010


iShares Russell 2000 Index - IWM - close: 78.53 change: -2.07

Stop Loss: 80.80
Target(s): 75.00
Current Option Gain/Loss: + 0.0%
Time Frame: 1 to 2 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
We've been expecting a market top in January. Today's decline could be the beginning of the correction. Granted the trend is still up and the IWM has not yet broken its bullish trend of higher lows but that doesn't mean we can't initiate very small bullish positions now as a hedge against our bullish portfolio. I want to reiterate this is an aggressive entry point since the market's trend is still up!

I'm suggesting we buy puts on the IWM now with a stop loss above today's high. Our first target is $75.00.

Open Small Position Now - Suggested Positions -

Buy the 2011 February $77 puts (IWM1119N77) current ask $1.22

Annotated Chart:

Entry on January 20th at $ xx.xx
Earnings Date --/--/--
Average Daily Volume = 38 million
Listed on January 19th, 2010