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Google Stock Options
The Smart Profits Report: Issue #142
Tuesday, September 14, 2004
Google Stock Options: What Happens When A High Volume Stock Has Half An Ounce Of Credibility
By Karim Rahemtulla
Investment Director, Mt. Vernon Research
OK, Google me this…
A few weeks ago Google came public in very loud fashion. Concurrent with the announcement of the first day’s trading action of the shares, I spied an announcement that CBOE (the Chicago Board Options Exchange) would list Google stock options within a few days… pending certification by the Options Clearing Corp (OCC).
A few years ago it could have taken weeks or even months before even a popular stock could have an options market! That’s because options are created by the options exchanges, not individual public companies. In fact many companies hate the fact that their shares even have options - makes it too easy for traders to short their shares!
Nonetheless, regulatory hurdles, sloth and plain mismanagement of the process would bog down many applications to create an option. That’s certainly changed…
Red Tape? What Red Tape?
I don’t know what the new certification process is…yet. But I’m guessing with Google it went something like this:
OCC Options Certifier - “Can you make money off the spread on Google?”
Options Exchange - “Sure.”
OCC Options Certifier - “OK - you’re approved.”
I mean what else could there be? Look at the press release:
“CHICAGO, Aug 19 (Reuters) - The Chicago Board Options Exchange said on Thursday it will list options on the shares of Google Inc. on Aug. 27 following certification to the Options Clearing Corp.
Shares of Google , the popular Internet search engine, made their Nasdaq stock market debut on Thursday.”
Google began trading on a Thursday, and by Friday of the next week its options were sailing. On the first day 69,000 Google options contracts (representing 6.9 million shares!) traded hands.
A High Volume Stock With Half An Ounce Of Credibility
Obviously, everyone knew that Google would emerge as a very active stock for 2004 and that means volume. Whenever you have a high volume stock that has even half an ounce of credibility, you will usually find an options market for the shares. But this time, even I was amazed at how quickly the market makers and options exchanges worked to get on Google stock options. It’s almost like they could smell the profits emanating from legions of savvy investor’ willing to Google their money away!
Bottom line is this: I’m happy as a clam-that-escaped-New England-chowder that the OCC could get their act together that fast. It is yet another indication that the options markets are heading to the mainstream in both their internal and external efficiency. That’s good news for investors like you and me - it allows for more variety and better options (pardon the pun) to manage our investments.
Good trading,
Karim Rahemtulla
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Today’s Smart Profits Cribsheet
- Why would anyone want to pay $2,446 for something they could get for $1,270? That’s a great question, and for the life of me I still can’t figure out why people are doing it every day. I usually decline when asked to recommend a stock for someone, but I know I can get more bang for my buck by purchasing stock options instead of buying the stock outright. Find out more in Smart Profits #202, Stock Options: How to Buy $2,446 Worth of MSFT for $1,270.
- Any conversation about taking profits, is sure to prick up everyone’s ears. But did you know that there’s a difference in profit-taking methods when holding options positions? It arises when you hold a “short” option position versus a long option position. When I say a “short” position, I don’t necessarily mean you’re bearish - I’m actually referring to selling stock options, as opposed to buying them. Check out Smart Profits #337, Selling Stock Options: Know This Key Selling Method To Profit With Options.
Related Articles:
- Volume: Reading Volume to Find 20% Gains… In 45 Minutes
- Index Options: A Billionaire’s Trading Tool Anyone Can Use
- LEAP Option Investing: The Best Options Play on eBay
