April 12, 2012 (Chinavestor) Google Inc. (NASDAQ: GOOG) earnings are coming out today at 4:30pm Eastern Standard Time. Last year Google’s 1st quarter earnings were $8.08 with revenue of $6.5 billion. This year the forecast is $9.64 a share with revenue of $8.1 billion.
Here’s what to expect…
Google Inc. (NASDAQ: GOOG) usually gaps up or down at least $30 or more. So the obvious play would be a straddle, right? (A straddle is an options strategy where you buy an at-the-money call and an at-the-money put. Hoping the stock moves a lot in one direction.)
There is no free lunch on Wall Street…
The market makers have priced in this kind of move already. So just before earnings, market makers juice up the premium (cost) in options making them more expensive. In fact, we can actually see the exact amount the market makers think Google will move over earnings by looking at an at-the-money straddle.
Below is a risk graph of an at-the-money straddle for Google Inc. (NASDAQ:GOOG) that expires this Friday.
Notice Google needs to move over $40 in either direction for this trade to be profitable.
Yellow arrows show the break even points!
"Micah Lamar also writes for AAPLTrader.com where he posts his trade ideas and option strategies, and independent service not affiliated with Chinavestor. "