How to Trade Google's Batch of Great and Horrible News

News about Google is permeating the airways with headlines about the continued rise in quantum computing abilities as well as Congress threatening to make Google's parent company, Alphabet, sell off the web browser Chrome.

This cross current of aggressive news headlines predicts a fair move to either the upside or downside. Let's consider giving this trade 20 days or so to work itself out. Hence, our expiration will be the January 2025 monthly options.

Here's how to structure the trade.

In this situation, I'm looking at a long double butterfly, with a twist.

A double butterfly is ideal for larger anticipated moves into a catalyst like earnings or a spike in news and follow through. This setup is a combination of a long call butterfly and a long put butterfly.

A long call butterfly is the combination of a long call spread, and a short call spread that share the same short strike. A long put butterfly is the combination of a long put spread and a short put spread that share the same short strike. They are positioned as two separate trades.

Here's the ‘twist' part – because my expectation is that the trade action will be volatile, I have adjusted the butterflies to sell more of the options further away – but have made the distance off the strikes closer so that we do not incur margin requirements.

The long call butterfly (positioned for measured upside)

• Buy to open 1 GOOG 17 Jan 200 calls
• Sell to open 3 GOOG 17 Jan 210 calls
• Buy to open 2 GOOG 17 Jan 215 calls

The long put butterfly (positioned for downside)

• Buy to open 1 GOOG 17 Jan 175 puts
• Sell to open 3 GOOG 17 Jan 165 puts
• Buy to open 2 GOOG 17 Jan 160 puts

The long call butterfly holds a current debit of 0.27 at this writing and the long put butterfly holds a current debit of 0.30. Together, the total risk is the debit you have paid for both butterflies, but if you have a definitive bias, you can engage in only one of them.  

The total potential profit is $10 times 100 (the distance between strikes times 100 as one option controls 100 shares) making the cost of the debit (0.27 + 0.30=.57) times 100. In other words, $1000 -$57 = $943.

It is extremely rare to collect all this premium. Instead, I like to consider 200%-300% profit of the investment. A key part of trading success and consistency comes from managing expectation.

The reason I chose these strikes is because GOOG's support and resistance levels. The relative resistance zone is right around $200, and this latest spike came with lower volume so even if it could run, it may not run far before reversing. The relative support is near $175.

The strategy result provides only two choices to exit the trade:

1. To sell the butterfly that is performing at your target parameters – particularly once the middle strike is tested.
2. To sell the both butterflies with ten days to expiration if there is no movement in price, if the chart does nothing, or once your threshold for loss is hit. Mine is typically 65-70% with these positions.

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