Alphabet Inc (GOOG)

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Alphabet's Earnings Are Mediocre, But Short Put Plays Are Still Hot
By: Barchart | February 5, 2023

Alphabet Inc. (GOOG, GOOGL) reported mediocre earnings results on Feb. 2, with slightly higher revenue but lower earnings and margins. Nevertheless, GOOG stock surged and short put option plays are making money for investors.

Revenue was up just 1% for the quarter YoY, but operating margins fell from 29% last year Q4 to just 24% in Q4 2022. Moreover, earnings per share (EPS) fell by a third from $1.53 to $1.05 per share.

More interesting was the 3.5% decline in Google Advertising revenue from $61.2 billion to $59 billion for the YoY comparison. The 32% revenue growth in Google Cloud led to an average of 1% growth in revenue overall, but the underlying decline in search ads is hurting the company. As a result, Google said on Jan. 20 it would lay off 12,000 people.

That represents about 6% of its global workforce. The company said it needed to downsize across the board to match its lower growth rate with the size of its workforce. That might help put the company back on an earnings growth rate curve.

At least analysts hope so. That is why the average EPS estimate is now $5.13 per share for 2023, up from the $4.56 achieved in 2022. However, this is still below the $5.61 earned in 2021. Nevertheless, these analysts also foresee $6.10 for the year ending Dec. 2024.

As a result, GOOG stock went from $99.87 at the end of January to a peak of $108.80 by Feb. 2 close. On Feb. 3, after the earnings announcement, the stock was down to $105.22.

Where This Leaves Short Put Option Investors In GOOG Stock

In several prior articles in January, I argued that short-put investors in GOOG stock, as well as GOOGL stock, could make good money shorting out-of-the-money puts. In fact, I also pointed out that several large funds had been buying in-the-money calls. They could have done this and made a good profit along with an out-of-the-money short put trade.

As it stands now, option premiums in Alphabet stock are still very high.

For example, March 3, 2023, GOOGL put premiums for the popular $100 strike price trades at $1.19 per contract. That represents a 1.19% yield to put strike price. The March 10 expiration period at the $100 strike price trades for $2.03 per contract, or 2.03% yield to put.

Similarly, for GOOG stock the March 3 $100 strike price put premiums are at $1.29 per contract and the March 10 $100 puts are at $1.45 per put contract.

That means the optimal play here is switching both stocks for the two expiration periods. Investors can short GOOG puts for $1.29 for March 3 expiration, and then either simultaneously short GOOGL puts for March 10 at $2.03, or wait to do that.

Either way, these two trades provide good income opportunities. Moreover, more conservative investors might want to short options at lower strike prices just below $100 in order to have more room for the stock to fall.

This shows that investors still have a good opportunity here to make additional income by playing out-of-the-money short strategies with GOOG and GOOGL stocks.

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