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GOOG Strangle


Updated Chart as of 6-30-10


I sold (10) 560/400 GOOG strangles for $1.55. Given the odds of this trade losing money I'm comfortable with the RoR of (1550/50000) = 3.1%. Earnings are on 7/15 after the market close, options expire on 7/16. I plan on exiting before earnings to avoid surprises since I'm exposed big on both sides. Above current price we've got possible resistances at $525, then the 200MA which acted as resistance five times from 4/28-5/3 before it really rolled over, and below we've got recent support three times at $463, and major long-term support at $400. The trajectory lines needed to reach either strike are steep, but the chart surely shows similar moves in the last year. I copied the needed trajectory lines in blue and looked for other areas of similar behavior and found three. However, this would entail the stock needing to immediately head in one of those directions and stay the course, and the stock is clearly in a channel the last six weeks so once again I'm comfortable with the risk. I'm basically risking a game changing unforeseen move. Since earnings can sometimes be that game changer I will look to exit ahead of then.

The buying power needed for the position is $50,000 on TOS, but I don't have that much in that account so I did it at IB. The buying power needed over there is more, something like $75,000. So I'm probably going to transfer the account sooner rather than later. I still like the prices and execution on IB so I've been hesitant. But efficient allocation of capital is a must so I've got to keep that in mind.
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