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VXGOG Setting Up a GOOG Straddle

Submitted by msebastian on Thu, 01/31/2013 - 5:16pm

VXGOG is the VIX of Google options.  It is an index of the volatility of google options with a constant duration of 30 days.  You have seen how we like looking at the VIX and overall volatility.  One of the great things about VXGOG is that it gives traders, that don't have LivevolX, a decent view of how Google options are pricing.  Today, VXGOG hit a 104 week low,  trading barely above 18%.

VXGOG.PNG

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Simultaneously, the VIX is no longer at at a 52 week low and has been rallying.  We have been saying for sometime that IV in the indexes is expensive and IV in stocks is cheap.  We think this is an excellent example of an opportunity to go long options in a single list name.  VXGOG almost always rallies off these lows.  It may take some time, but it will rally back.  To take advantage of this kind of low IV, we can look at a few options; the one I like best is a March straddle.

straddle_0.PNG

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I like the March time frame, because it leads into a hot period where traders will begin speculating on GOOG earning's movement.  Also,  it's DIRT cheap.  33.00 for a straddle with 42 days to expire in a 755.00 stock is too cheap in my opinion, especially with how quickly GOOG can move.  Our break evens at expiration are 722 and 788, both of which are very attainable.

  goog_1.PNG

Livevol (R) www.livevol.com

With the IV this low, I think we are looking at a slower decay than the model is predicting and potential to make a quick buck if GOOG rallies or drops over 1.5% on any day in the next week.  Even beyond that, I think it could be a nice longer term movement trade.  33.00 is about 4% of the value of the stock, and anyone that thinks Google can't move that much in the next 40 days or so is welcome to sell this straddle to us.

The Trade:

We like buying the GOOG March 755 straddle for 33.00.  We would set a stop loss at down 15% and look to start taking profits at 40.00 or so.

This is the type of information we will train you to analyze in our gold course.  If you needed help following this trade, you should be in that course.  Register here, or call us (888) for more info.

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