Googling the Trade on Alphabet for the Rest of 2022

Neither Google nor its parent company, Alphabet Inc., is affiliated with Direxion Shares ETF Trust, its investment adviser or any affiliates and is not involved with the Funds in any way. Investing in the Funds is not equivalent to investing in GOOGL.

Google's parent company, Alphabet Inc. GOOGL, GOOG (Class C Shares)) appears to be in big trouble. Year-to-date, share price of Alphabet Inc. (referred to throughout this article as Google) is down over 40% year-to-date (as of 11/3/22) having missed consensus analyst earnings-per-share (EPS)* estimates now for three consecutive quarters. 

Despite a brief rally in late July after a 20-for-1 stock split, the outlook has turned bearish as the once-leading tech giant now trails the performance of the S&P 500® Index.* On October 26, the stock tanked as Google reported a miss on its third-quarter revenue due to lower-than-expected advertising sales.

This latest bearish development comes after numerous efforts by the company to stimulate growth. Measures undertaken throughout 2022 include the acquisition of cybersecurity firm Mandiant for $5.4 million and a stock buyback of $15.19 billion.

The time between today and Google's next quarterly earnings report will be a critical period for the company. For bullish and bearish traders alike, we believe there may be ample trading opportunities. Here's how traders can speculate or seek to hedge on Google's outlook with Direxion's new Single Stock ETFs – the Direxion Daily GOOGL Bull 1.5X Shares (GGLL) and Direxion Daily GOOGL Bear 1X Shares (GGLS).

Investing in the funds involves a high degree of risk. Unlike traditional ETFs, or even other leveraged and/or inverse ETFs, these leveraged and/or inverse single-stock ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification. Leveraged and inverse ETFs pursue daily leveraged investment objectives, which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying stock’s performance over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments. The Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Bull Fund will lose money even if the underlying stock’s performance increases, and the Bear Fund will lose money even if the underlying stock’s performance decreases, over a period longer than a single day. An investor could lose the full principal value of his or her investment in a single day. 

Two Ways to Trade Google

Traders can speculate on Google's short-term share price movements by either focusing on fundamentals or the broader market environment.

For fundamentals, traders can take positions based on their predictions for Google's future revenues, particularly as it pertains to advertising and cloud sales. 

Both segments have slowed down markedly in terms of growth over the last year due to inflationary and recessionary pressures. With Cloud becoming one of Google's main revenue drivers, a surprise there may spark strong price action. 

For the broader market environment, traders can focus on the continued strength of the U.S. dollar and upcoming U.S. Federal Reserve decisions. 

Recent surges in the strength of the U.S. dollar have unfavorably impacted revenue growth rates for Google's international sales segments. A continued increase here may hurt EPS further as it devalues revenues from international clientele. 

Another catalyst could be the next Federal Open Market Committee (FOMC) meeting on December 13 – 14. Previously, Chairman Jerome Powell delivered the fourth consecutive 75-basis point* hike but hinted that a pivot might be ahead in 2023 depending on the state of the economy. 

Given Google's higher beta of 1.10 and prominence as the top holding by weight in many equity indices, a broad market sell-off caused by an unexpectedly hawkish Fed decision could create further short-term losses in the company's share price. Case in point, the uncertainty from Powell's mixed message on November 2 caused Google's share price to slide -3.87%. 

What to Use to Trade Google

Traditionally, traders looking for enhanced, leveraged or inverse exposure to Google had to make do with options* or margin.* Both approaches expose a trader to different sources of risk that may be undesirable. 

For options, traders must correctly predict the direction that Google's stock moves, time the expiry date of their options correctly, and also account for changes in volatility. 

It is completely possible for a novice trader to buy puts* in anticipation of Google's price falling yet lose money even if the stock drops. In this case, paying too much for the put option's premium can cause losses once implied volatility dies down after the event, an effect called "volatility crush."

A trader can also see their option decay in value quickly as the expiry date approaches due to theta, nullifying any gains they could have made. 

Portfolio margin is an alternative to options, but this approach opens an investor up to the risk of margin calls or unlimited risk if they sell the stock short. With margin or short-selling, a trader could potentially be on the hook for more than their original investment. 

Trading Google with Direxion ETFs

 

A strategy to consider here is to use a leveraged or inverse ETF that provides amplified or inverse exposure to shares of the common shares of Alphabet, Inc. Class A GOOGL. The Direxion Daily GOOGL Bull 1.5X Shares (GGLL) and Direxion Daily GOOGL Bear 1X Shares (GGLS) can be considered as alternatives to options or margin.

GGLL seeks daily investment results, before fees and expenses, of 150% of the daily performance of GOOGL, while GGLS seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the daily performance of GOOGL.  

Both ETFs do not invest directly in Google. Rather, they invest in derivatives, including swap contracts, to obtain daily leveraged or inverse exposure. Traders must understand that that the leverage target is daily and the Funds should not be expected to achieve their investment objective for a period of time different than a trading day. 

Unlike options, a trader who buys GGLL or GGLS does not have to account for changes in implied volatility or theta affecting the value of their investment. With GGLL or GGLS, a trader can focus on predicting the right direction for the stock's future movements.

Unlike margin, a trader who buys GGLL or GGLS has their risk capped at the price they paid for the ETF’s shares. There is no chance of a margin call if the value of the investment falls or of being forced to cover a short position that has gone up significantly in value. 

As with all leveraged or inverse ETFs, GGLL and GGLS can be a powerful way to achieve short-term exposure but only if traders do their due diligence on Google's short-term outlook, have a strong investment thesis, possess a high-risk tolerance, and actively monitor their investments.

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.

Featured Photo by Firmbee.com on Unsplash

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.

*Definitions:

- Earnings per share (EPS) is a company's net profit divided by the number of common shares it has outstanding. EPS indicates how much money a company makes for each share of its stock and is a widely used metric for estimating corporate value.

- Option is a contract which conveys to its owner, the holder, the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date, depending on the style of the option. 

- A put option (or “put”) is a contract giving the option buyer the right, but not the obligation, to sell a specified amount of an underlying security at a predetermined price within a specified time frame. Direxion does not offer or endorse options trading.

- Margin is the collateral that a holder of a financial instrument has to deposit with a counterparty to cover some or all of the credit risk the holder poses for the counterparty.

- S&P 500® Index: Standard & Poor’s ® selects the stocks comprising the S&P 500 ® Index on the basis of market capitalization, financial viability of the company and the public float, liquidity and price of a company’s shares outstanding. The Index is a float-adjusted, market capitalization-weighted index. One cannot directly invest in an index.

- A basis point is one-hundredth of 1 percentage point

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at www.direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.

Technology Sector Risk – The market prices of technology-related securities tend to exhibit a greater degree of market risk and sharp price fluctuations than other types of securities. These securities may fall in and out of favor with investors rapidly, which may cause sudden selling and dramatically lower market prices. Technology securities may be affected by intense competition, obsolescence of existing technology, general economic conditions and government regulation and may have limited product lines, markets, financial resources or personnel.

Alphabet Inc. Class A Investing Risk – As of the date of this prospectus, in addition to the risks associated with companies in the information technology sector, Alphabet Inc.’s Class A shares face risks associated with reliance on advertising revenue and the effect that loss of partners or new and existing technologies that block advertisements online may have on its business; intense competition for its products and services across different industries; investments in new businesses, products, services and technologies that may divert management attention or harm its financial condition or operating results; slowdowns in its revenue growth rate; the ability to protect its intellectual property rights; the ability to maintain or enhance its brands and its impact on the ability to expand its user base, advertisers, customers, content providers and other partners; manufacturing and supply chain issues; interruptions to, or interferences with, its complex information technology and communication systems; its international operations; failure to evolve with the advancement of technology and user preferences; data privacy and security concerns; regulatory, and legal and litigation issues.

Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with a Fund concentrating its investments in a particular security, industry, sector, or geographic region which can result in increased volatility. A Fund's investments in derivatives such as futures contracts and swaps may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments, including imperfect correlations with underlying investments or the Fund's other portfolio holdings, higher price volatility and lack of availability. As a result, the value of an investment in a Fund may change quickly and without warning. Risks of the Funds include Effects of Compounding and Market Volatility Risk, Leverage Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Daily Correlation/Tracking Risk, Alphabet Inc. Class A Investing Risk, Single Security Risk, Market Risk, Indirect Investment Risk, Trading Halt Risk, and risks specific to the technology sector.  

Additional risks include, for the Direxion Daily GOOGL Bear 1X Shares, risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of the Funds.

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