Google options suggest 4 pct move after earnings

* Volatility expected for Google below normal-trader

* Avg share move for Google about 6 pct-SFG

* Susquehanna suggests owning October Google options

By Doris Frankel

CHICAGO, Oct 14 (BestGrowthStock) – Traders in Google options
appear to be pricing in a potential post-earnings share move of
just over 4 percent, down from its average swing of 6 percent
over the past four quarters.

Google Inc (Read more about Google Stock Analysis) (GOOG.O: ) is expected to report an increase in
third-quarter profit (Read more your timing to make a profit.) after the close, but the stock has
underperformed as investors fret about the Internet giant’s
free-spending ways with more than 20 acquisitions this year
alone. For details, please see [ID:nN12185110].

Analysts on average expect earnings of $6.69 per share, up
from $5.89 a year ago, according to Thomson Reuters I/B/E/S.

Google’s October at-the-money straddle is pricing in about
a $22 earnings day move following Thursday’s report or a 4.2
percent swing as of Wednesday’s close, said Steve Place, a
founder of trading information site in
Mobile, Alabama.

Option traders estimate earnings moves by looking at the
stock’s at-the-money straddle, a combination of a call and put
with the same strike price and expiration. A straddle is a
volatility play but also an easy way to measure an expected
move of a stock ahead of a risk event such as earnings.

“Google is always going to be volatile around earnings but
the volatility expected for this earnings report is not
abnormal,” Place said.

Over the last four earnings reports, shares have seen an
average one-day absolute earnings move of 6 percent in either
direction, Susquehanna Financial Group said on Thursday.

It appears as if the options market is pricing in a move of
just over 4 percent, slightly less than the average, SFG said.


With the option-implied earnings move looking slightly
lower than recent earnings moves, long October options
strategies in Google ahead of earnings may be attractive, wrote
SFG’s market intelligence team in a report.

Susquehanna advised long-term bulls who want to be cautious
of the event risk to buy calls and suggested shareholders
looking for near-term protection to purchase puts.

Investors hesitant to go long the equity ahead of earnings
but concerned about missing potential upside should consider
buying October $540 strike calls as a low-risk alternative.

Similarly, those who are long the stock but cautious of a
post-earnings pullback similar to the ones experienced
following Google’s last three quarters could consider buying a
October $540 strike puts, Susquehanna said.

An equity call option conveys the right to buy shares at a
fixed price up to a certain date while a put grants the right
to sell shares at a fixed price any time until expiration.

Susquehanna has a positive rating on the stock with a $650
price target. SFG Internet analyst Marianne Wolk is “bullish on
Google’s long-term opportunities, and believes the quarter is
on track to surpass published revenue forecasts,” but she notes
that heightened investor expectations could make a beat of
whispered expectations more difficult, the report said.


Expiration of monthly October options will have an effect
on earnings moves. Front-month options on individual stocks
expire after the close on Friday.

The expiration makes analyzing expected earnings moves by
companies due to report much easier, said Place.

“The extrinsic value of options are related to two things:
time risk and volatility risk,” Place said. “And when you get
very close to expiration, the time premium of the options are
negligible and so any premium left in the options is related
strictly to the earnings event.”

Google shares fell 0.4 percent to $541.14 in late morning

(Reporting by Doris Frankel; Editing by Andrew Hay)

Google options suggest 4 pct move after earnings