More on GOOG

Plus MNST & SBUX

Dear Bottarelli Research Member,

It’s becoming crystal clear that we’re in uncharted territory when it comes to Google options. We have to go back six years, to the dot.com days of 2000, for the last time a stock has engaged in such extreme upside movements on a day to day basis, and this is certainly having an effect on our GOOG October 460 Calls (GOP JL).

As I wrote this morning’s alert, these calls were opening the day between $2.60 and $3.60 per contract. Moments later, they dropped down to $2.00, and then down under $1.00. What’s happening is that the October 460 calls give you the right (but not the obligation) to buy 100 shares of GOOG for $460 a share. With the stock currently trading for $455, this means your calls are $5 out of the money on the day before expiration.

Now here’s the thing: If you were able to exit the position at the open of trading this morning, you are out of the position entirely. But if prices dropped back down before you were able to execute a sale, then here is the choice you are now facing: You can either close off the position now — or you can wait to see if GOOG rallies towards the close of trading — thus taking the calls from being “out of the money” to being “in the money.”

For instance, GOOG is currently up $30 in today’s action. If GOOG closes up $40, for example, then your October 460 calls will have an intrinsic value of $5.00 (after all, you own the right to buy a $465 stock for $460, thus making your calls worth $5). This is why the October 450 calls currently trade for $6.50 and our October 460 calls trade for only $1.00. As you can see, this is a huge difference in price — determined solely by GOOG’s share price at the close of today’s trading. That’s the big decision. You can either close off the position at current levels — or you can see if GOOG rallies towards the close, which could make your October 460 calls a winner. Either way, situations like this are way I issued a “warning” before issuing this trade — calling it for pure speculators only.

As a side note, I am shocked that the calls aren’t trading higher today. Every options pricing model I ran on this call calculated a price of at least $4.00 — and that even accounted for the 1 day expiration cycle. For the calls to go from a high of $3.60 this morning to under $1.00 right now, this is a clear illustration of why I feel we’re in uncharted territory on this play. There is no reason for prices to move so violently while GOOG traded in a tight upside range. In retrospect, it would have been wise to pay additional premiums and play the November contracts. Next time, I’ll be sure to do that.

In terms of our other positions, we’re beginning to see some nice gains and I’d like to take full advantage. First of all, I’d like to maintain our DIA November 120 Puts (DIA WP) hedges. It’s clear that the Dow is struggling to maintain the 12,000 level, and any subsequent downside will hand you a gain on this position.

While maintaining the DIA puts, I’d like to lock in profits on our MNST November 40 Puts (BSQ WH) and our SBUX November 37.5 Puts (SQX WU).

Your MNST putshave traded as high as $3.10 today and your SBUX puts have traded as high as $1.80 today, so let’s go ahead and lock in some gains if we witness those levels anytime today.

PL:AY: Sell your MNST November 40 Puts (BSQ WH) at or above $3.10

PLAY: Sell your SBUX November 37.5 Puts (SQX WU) at or above $1.80.

Of course, I’ll continue to monitor the GOOG situation and keep you up to speed on any new developments. Until then…

Lock and load!

Sincerely,