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April 17, 2008

Google Eyes

Late in today's trading session, I was keeping an eye on the price of two Google options: the April 455 call and the April 455 put. Going long this at-the-money straddle (which expires tomorrow!) would have been a bet on a big move in Google shares after their earnings report. The straddle would have cost about $30, meaning that Google shares would have to break more than 6.6% one way or the other for the straddle buyer to profit.

A buyer would not have been disappointed. As of this writing, GOOG is up $75 in after hours trading, meaning the straddle is worth 116% of its purchase price. Of course, the options market is closed, and there is no guarantee Google's after hours gains will carry over until morning. So our hypothetical buyer (I did not bite on this one) would need to short 100 shares of Google after hours for each straddle purchased in order to lock in the current profit. Complicated bit, this is.

Anyway, the positive reaction to Google's earnings furthers the notion that the triangle formation in the S&P intraday chart I highlighted earlier will resolve as anticipated. The minimum target is 1380, and if the triangle is considered to be the midway consolidation of yesterday's surge, we can target 1400 SPX. Now wouldn't that put a nice dent in a bear's spirit...


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