GOOG — Bullish but Extended?

I think we can all agree $GOOG ($836, up $4.48) is a bullish chart. I actually have to say I’m a “cautious bull” however.

CB 3 11 GOOG.gif

Even though this IS a bullish chart by definition we are closer to Fibonacci Price EXTENSIONS of the prior major swing along with the fact that there is also some “TIME RESISTANCE” to the current rally. This makes me “cautious”. Note on this weekly chart that the last time we “extended”, GOOG eventually saw a $124.08 correction. This does not mean that this will definitely happen this time around, but it does mean that GOOG is vulnerable to a corrective decline.

One of the things you can do here is tighten up stops on any long positions so you can be safe rather than sorry. Maybe you won’t get stopped out.

Maybe there are some other options strategies you can employ….

Since this could all happen in the next few weeks, no need to look further than April options. If you own 100 shares, selling an April (19th) 885 strike call (~6% out-of-the-money, OTM) keeps you in the game and obligates you for the next ~40 days to sell the stock at $885. The 885 call was trading at $8.80. But that’s not much protection if we have a correction. One strategy could be to use the premium received to buy an April 810 strike put (3% OTM) and sell an April 775 put (7.5%) OTM. The entire option position could be initiated for a slight credit.

You have a 6% potential gain to $885 and 3% risk to the downside (with a move 7.5% lower). There is more risk below $775, and these numbers are without commission.

Watch the next few weeks…