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Risk Malaise Alert in Option Market: Alphabet Inc Implied Price Swing Hits A Depressed Level




Alphabet Inc (NASDAQ:GOOGL) Risk Hits A Depressed Level

Date Published:

Risk Malaise Alert -- Not How You Might Think:
Before we dive into any analysis we simply note that Alphabet Inc (NASDAQ:GOOGL) risk is actually priced pretty low by the option market as of right now. We'll detail it below -- but that's the lede -- the option market is reflecting a sort of risk malaise, for now, an IV30 of 23.16% versus the IV30 of the S&P 500 at 14.76%. The annual high for Alphabet Inc IV30 is 31.83% -- and we're below that level. The alert here is low vol.



One thing to note beyond the risk malaise alert, which we cover in the article, is that while implied volatility may be low, the real question that needs to be answered for option sellers is not if the implied vol is low, but rather if the realized volatility that is coming in the next 30 days will be lower than the option market is pricing.

To skip ahead of this risk alert and see if buying or selling options has been a winner in Alphabet Inc, you can go here: Getting serious about option trading.

PREFACE
This is a proprietary risk rating and risk alert system that looks forward for the next month -- or really 30 days to be exact -- and that includes weekends. The system is based on multiple interactions of data points, many of which come directly from the option market for Alphabet Inc (NASDAQ:GOOGL) . The creator of this model is Capital Market Laboratories (CMLviz.com).
Option trading isn't about luck -- this four minute video will change your trading life forever: Option Trading and Truth

In the "Why This Matters" section at the end of this article on Alphabet Inc we're going to take a step back and show in great specificity that there is actually a lot less "luck" in successful option trading than many people know. The whole concept of an "option trading expert" is vastly over complicated and we'll talk about how superior returns are earned.

But first, let's turn back to GOOGL and the company's risk rating:

We also take a peek at the implied vol for the Technology ETF (XLK), our broad based proxy for GOOGL.





SNAPSHOT SUMMARY
S&P 500 IV30     14.76%
Nasdaq 100 IV30     18.92%
XLK IV30     18.19%

GOOGL HV 30     33.67%
GOOGL Current IV30     23.16%
52 Week Low IV30     10.62%
52 Week High IV30     31.83%


The risk as reflected by the option market has hit a depressed level relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($1,034.00, $1,149.60) within the next 30 calendar days.

While the option market risk rating is on the low side, we note that companies in this situation are still susceptible to sudden stock move risk, it's simply the probability of that large stock move is depressed. Buyers of options and volatility may find these prices more attractive than at other times.

GOOGL OPTION MARKET RISK
The IV30® is the risk reflected by the option market in the stock price for the next 30 calendar days -- it's forward looking. Alphabet Inc shows an IV30 of 23.2%, which is a depressed level for the company relative to its past.

The option market for GOOGL has shown an IV30 annual low of 10.6% and an annual high of 31.8%, meaning that GOOGL is at the 59% percentile right now. Here's a table of the data before we dig into the risk rating further.

GOOGL
Current IV30    
GOOGL
Low IV30    
GOOGL
High IV30   
23.2% 10.6% 31.8%

The implied stock swing risk from the option market reflects a wider range in the next 30 calendar days for Alphabet Inc (NASDAQ:GOOGL) than it has on on average.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 33.67%.




We have a situation now where not only is the IV30 elevated relative to the past, but even with that risk pricing, the option market reflects the likelihood of less stock movement in the next 30-days than it has in the last 30-days. Let's turn to a chart to see what's going on.
 
Note how much lower the forward looking stock swing price risk for Alphabet Inc is priced (23.2%) compared to what happened just in the last 30-days (33.7%).

Alphabet Inc Risk Rating
The GOOGL risk rating is at 1.5, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 1.5 rating are:

The IV30 is above the annual average.
The IV30 is below 30%.
The HV30 is above the 80th percentile.
The IV30 is below the HV30.