Option bulls took a shine to Google
(NASDAQ:GOOG) this morning, with the stock up 2.3% at $907.25 as of 11 a.m. EDT, after touching a record high of $911.76 earlier. Within the first 90 minutes of trading, GOOG saw roughly 55,000 calls change hands -- nearly four times its average intraday call activity -- as traders gamble on more upside this week.
Garnering the most attention have been the May 900 and 910 calls, which have seen around 6,200 and 6,600 contracts cross the tape, respectively. Most of the calls have traded on the ask side, and volume has exceeded open interest at both strikes, underscoring our theory of newly bought bullish bets.
By purchasing the 900-strike calls at a volume-weighted average price (VWAP) of $9.45, the buyers' profit will increase the higher GOOG soars beyond $909.45 (strike plus VWAP) through the end of the week, when May-dated options expire. Meanwhile, the more ambitious bulls bought the 910-strike calls at a VWAP of $5.15, indicating a breakeven of $915.15. In either case, the maximum risk on the purchase is the initial premium paid for the calls.
Bolstering Google and fueling today's call activity was a report that the company signed licensing deals with Sony Music
(NYSE:SNE) and Universal Music Group, and will soon launch a paid music service
to rival Spotify. In addition, traders are likely optimistic ahead of Google's annual software developers' conference
, slated to kick off this morning in San Francisco. Last year at the conference, the company unveiled Google Glass.
Whatever the motive, today's appetite for short-term calls runs counter to the trend. In fact, Google's Schaeffer's put/call open interest ratio (SOIR) stands at an annual high of 1.39, implying that near-term traders haven't been more
put-skewed during the past year.
This article by Andrea Kramer was originally published on Schaeffer's Investment Research.
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No positions in stocks mentioned.