Investing in a stock generally requires you to pay the share pricemultiplied by the number of shares bought. If you wanted 100 shares of Google (GOOG), now Alphabet Inc., it would cost around a quarter of a million dollars (100 * $2,500 per share) as of February 2022.
However, there is an alternative method that requires less capital:options. This is done by using in-the-moneycall options that mimic the movement of the stock. The deeper an in-the-money the call option is—meaning the closer the delta is to 1—the betterthe option price will track the stock’s movement.
Key Takeaways
Google (Alphabet, Inc.) has grown to become a household name and one of the most valuable companies in the world by market cap.
Worth nearly $2 trillion, its shares also trade between $2,000 and $3,000, making it difficult for some individual investors to own a whole share, let alone several of them.
One way to bet on GOOG or GOOGL shares is to instead use options contracts, which often trade at a fraction of the price of the actual shares.
If you have a short-term investment horizon, you could probably take a call option expiring on Oct. 18,2014, as shown in the table above. The strike price is the price at which you have the right but not the obligation to buy the stock. The price you pay to have this option is the premium price or the last price. As the strike price decreases, the call option is deeper in-the-money and the premium also increases. The volume, i.e. the number of option contracts traded, affects the bid-ask spread.The higher the volume, the lower the bid-ask spread; the lower the bid-askspread, the moresavings on transaction costs for the investor.
Say you buy the 520 strike Google option at the ask price of $61.20, the breakeven price(BEP)becomes $581.20. On Sept. 3,2014, the stock was trading at around $575. If the stock stays at $575 until Oct. 18, the option price should decline to $55 as the strike price ($520) plus the premium ($55) would then equal the stock price ($575), canceling any arbitrage opportunity.
Since the delta of the option is 1, any change in the stock price should move the option price by the same amount. For example, if the stock price moves to $600 at expiry, the option price would become $80 ($600-$520), for a gain of $18.80, which is $6.20 less than the $25 gain for the stock. The $6.20 representsthe time value of the option, which would decayeventually to zero at expiry.
Opportunity andProtection
Another benefit of investing in Google or any other company using options is the protection an option carries if the stock falls sharply. The fact you don't own the stock,only the option to buy the stock at a certain price, protects you if the stock takes a plunge. This is because you will only lose the premium paid for the option instead of the actual value of the stock.
Say you held100 shares of Google in 2014and they fell sharply from $575 to $100. This represents a loss of $47,500. However, if you owned a call option of 100shares of Google you would haveonly lostthe premium paid. If you paid $61.20 per share for a call option of 100 shares of Google, you would haveonly lost$6,120 instead of$47,500.
Longer-term options are relatively more illiquid than shorter-term options and therefore the transaction costs in the form of a bid-ask spread would be higher. Figure 2shows the number of trades for call options expiring in June 2016 was less than in the March 2015 expiry, which wasless than the October 2014 expiry. Therefore, it would have becomequite expensive and difficult to invest in a stock using options for the long term. One alternative would beto roll over the options at each expiry, but this would also increase transaction costs in the form of higher brokerage fees.
For some companies and other securities, there are also mini-options for which the underlying is 10 shares instead of 100. This is useful for smaller investors and for hedging odd lots of a particular stock, i.e. not in multiples of 100. Unfortunately, the volume in these options is not high and mini-options are not as common as regular options.
The Bottom Line
Using options is a cost-effective way to gain exposure to a stock without risking a lot of capital and still beprotected on the downside. One of the main drawbacks is the liquidity of the option contract itself. If you are an investor interested in investing in companies with a high stock price (i.e Amazon (AMZN), Tesla (TSLA) or Google)withouttying up too much capital, options might be the right answer for you.
Alphabet's most recent flirtation with a $2 trillion valuation follows a 13% runup in its share price year-to-date and a 77% jump dating back to the end of 2022, a rally spurred by record profits due to resilient advertising spending and on the back of investor optimism partially inspired by the company's potential to ...
Alphabet Class A has 7.19% upside potential, based on the analysts' average price target. Is GOOGL a Buy, Sell or Hold? Alphabet Class A has a conensus rating of Strong Buy which is based on 30 buy ratings, 7 hold ratings and 0 sell ratings.
As of 2024-04-22, the Fair Value of Alphabet Inc (GOOGL) is 142.13 USD. This value is based on the Peter Lynch's Fair Value formula. With the current market price of 154.09 USD, the upside of Alphabet Inc is -7.8%.
This means there may be no options available to buy or sell on a certain security, leaving the investor no choice but to buy or sell the underlying instrument to get exposure. Exchanges require minimum listing criteria to be met before they will add options.
The Google stock holds a sell signal from the short-term Moving Average; at the same time, however, there is a buy signal from the long-term average. Since the short-term average is above the long-term average there is a general buy signal in the stock giving a positive forecast for the stock.
The company has generated cash flow growth of 15.1%, and is expected to report cash flow expansion of 16.7% in 2024. Investors should take the time to consider GOOGL for their portfolios due to its solid Zacks Rank rating, notable growth metrics, and impressive Growth and VGM Style Scores.
According to the latest long-term forecast, Google price will hit $200 by the end of 2025 and then $250 by the end of 2026. Google will rise to $300 within the year of 2028, $350 in 2029, $400 in 2031 and $450 in 2033.
Based on 11 Wall Street analysts offering 12 month price targets for Alphabet Class C in the last 3 months. The average price target is $168.64 with a high forecast of $185.00 and a low forecast of $160.00. The average price target represents a 7.43% change from the last price of $156.97.
The $5,000 per share thesis is somewhat dependent on there not being an economic slowdown anytime soon – although given that many observers predict an economic boost from the recovery of the coronavirus crisis, this possibility remains unlikely.
Shareholders with this type of stock can have a say in Google's corporate policy, vote for the board of directors, and approve or disapprove of any major decisions. For this reason, GOOGL shares tend to trade at a slightly higher price than GOOG shares, due to the additional voting rights.
Typically, you don't want to buy an option with six to nine months remaining if you only plan on being in the trade for a couple of weeks, since the options will be more expensive and you will lose some leverage.
Originally Answered: What if nobody buys your options? Then the options are worthless. The value of something is determined not by asking or appraised price but rather on sale price. If you put something up for sale and no one buys it, then it is worthless.
GOOGL also holds an average earnings surprise of 7.2%. With strong valuation and earnings metrics, a good Zacks Rank, and top-tier Value and VGM Style Scores, investors should strongly think about adding GOOGL to their portfolios.
The company has generated cash flow growth of 15.1%, and is expected to report cash flow expansion of 16.7% in 2024. Investors should take the time to consider GOOGL for their portfolios due to its solid Zacks Rank rating, notable growth metrics, and impressive Growth and VGM Style Scores.
According to the latest long-term forecast, Google price will hit $200 by the end of 2025 and then $250 by the end of 2026. Google will rise to $300 within the year of 2028, $350 in 2029, $400 in 2031 and $450 in 2033.
The 37 analysts with 12-month price forecasts for Alphabet stock have an average target of 158.95, with a low estimate of 121 and a high estimate of 190. The average target predicts an increase of 0.44% from the current stock price of 158.26.
Introduction: My name is Barbera Armstrong, I am a lovely, delightful, cooperative, funny, enchanting, vivacious, tender person who loves writing and wants to share my knowledge and understanding with you.
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