From CNBC · Julia Spina · · 1m 50s
Alphabet shares bottoming out, options traders see rebound play
After Alphabet's worst one-day drop in history, traders are betting on a recovery using call spreads as markets await Nvidia results.
In brief
After Alphabet's worst one-day drop in history, traders are betting on a recovery using call spreads as markets await Nvidia results. Alphabet shares fell nearly five hundred billion dollars in market value after earnings, but traders see a buying opportunity through options strategies ahead of Nvidia's results…
Alphabet's historic sell-off
Alphabet shares experienced their worst one-day drubbing in its history, losing nearly five hundred billion dollars in market capitalization. The stock has rallied just one point five percent since.
Strong earnings amid the decline
Alphabet posted its thirteenth straight quarter of double-digit revenue growth in the same report, with Google Cloud revenue more than doubling. The muted recovery stands out given this strength.
Why the market reacted so sharply
Alphabet's earnings were the first major crack to appear in the AI trade and foreshadowed volatile events for the complex, including the election and growing scandal enveloping Nvidia CEO Jensen Huang.
New AI systems signal continued evolution
On Monday, Google launched two new systems built on its custom AI chip, the TPU, a sign the company keeps evolving. The debate over AI and search is far from settled.
The options trade setup
Based on Monday's close, buying the December eighteen two hundred eighty five slash three hundred call spread for a debit of roughly seven dollars and seven cents. The trade expires December eighteen.
Profit and loss on the trade
The trade has a theoretical probability of profit of forty seven percent and reaches maximum profit of seven hundred ninety three dollars per spread if Alphabet closes at or above three hundred on December eighteen.
Key risks to watch
Nvidia's results on November seventeen could set the tone for the AI trade. Rates, energy prices, and scrutiny of data center construction remain headwinds to watch for Alphabet's recovery.
The essence
Alphabet shares fell nearly five hundred billion dollars in market value after earnings, but traders see a buying opportunity through options strategies ahead of Nvidia's results.
