(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of GOOGL.)
Alphabet Inc. (GOOGL) shares have risen by about 26% over the past 52 weeks, but shares have been in neutral since the end of January. But signs are emerging on the technical chart and the options market that suggest shares could be set to rebound, with the potential to rise by as much as 10%.
The stock fell sharply following quarterly results in January, and have more recently dropped as the technology sector has been dragged down by concerns over Facebook Inc. (FB) and data security. But the stock has reached a technical level which could lead to the stock rising, while options traders appear to be increasing bets the stock will advance. (For related reading, see also: Why Google, Facebook Will Outperform FAANGs: Meeks.)
Stock Sets a Trend Line
Shares of Alphabet have been trending higher since December of 2016, and the stock's recent decline has taken shares back to that trend line. The trend line has served as support on many occasions over the past year. The one time it didn't was during the sudden and sharp market sell-off in February of 2018. Should that trend line continue to offer support, it would suggest shares of Alphabet could head back to its previous highs around $1,200, a rise of about 10%, from its current price around $1.090.
Options Looking for a Rise
The options market is implying that shares of Alphabet may rise or fall by about 5.6% from the $1,100 strike price set to expire on April 20. That would put the stock in a trading range between $1,038 and $1,161. But the number of calls outweigh the number of puts by nearly 2 to 1, with 5,200 call contracts of open interest. With the calls trading at a price of roughly $30 per contract, it gives the call contracts a notional value of approximately $15.6 million.
Adding to Positions
Additionally, the call options at $1,150 have nearly 7,400 open contracts and have a price of roughly $11.50 per contract. It means the stock needs to rise above $1,162, about 6.6% higher than the stock price on March 21, to be profitable. The options represent a notional value of about $8.5 million, a sizable bet for a stock 6.5% out of the money. But what seems most interesting is that the open interest has been increasing over the past few days, after the stock's recent sell-off. Open interest on March 16 was only 4,000 contracts when the stock was trading at $1,135. But the open interest has nearly doubled as the stock has fallen. (For more, see also: Amazon's Ad Push Shouldn't Pressure Google: Mizuho.)
For now, the long-term trend line could be the key to the future direction of the stock, and options traders appear to be betting the stock finds a bounce.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.