Searching for a Google Play

I don't put a lot of faith in the action of a stock the day it is set to report earnings unless that action is extreme. The action in Google (GOOG), even being red on a generally green day for equities, isn't extreme. It may be a sign of caution for those who have enjoyed a huge winner, but who can blame them? The stock is up about 30% already this year.

Options are pricing in a move around $38, which doesn't seem too bad. Based on the price chart for GOOG, I see $880 and $955 as possibilities by Friday. If the company tosses out an extreme disappointment for the quarter and guidance, I would say even $850 is possible.

Google (GOOG) -- Daily

Source: StockCharts.com

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Still, $38 is a tough for just about anyone to swallow. If GOOG doesn't move much -- or at all -- investors could be looking at big losses rather quickly. My preferred way to play a big name like this is with diagonal spreads or calendar spreads. I would generally set up a long trade in an August strike or even September and short the weekly options.

My preferred design on a diagonal is to go fairly far out-of-the-money on both a call and put diagonal spread where the price of the two combined generally equals the spread between the long month option and short month option. For a name like GOOG, I would generally have to go fairly far out-of-the-money and use an August long expiration against a short July expiration. I prefer this approach because if GOOG moves significantly, I can still get out of the trade with at least a small profit.

I will be getting ready to board a plane when Google's after-hours trading kicks into action, so I will likely sit this one out and look to play some follow-through on Friday. GOOG usually sets up as a good name to trade after the first 15 or 20 minutes of regular session trading has passed.

At the time of publication, Collins had no positions in the stocks mentioned.