That was quite a turnaround yesterday, eh? Google, for one, ripped for a $14 gain following a weak opening, finally closing within 25 cents of the intraday high. We’d hoped to get aboard at a swing low, but had expected it to take a few more days for the stock to find traction. In fact, the entire, savage correction lasted all of two days, terminating abruptly in the opening minutes of Thursday’s session. You can’t keep the good ones down, as the old saying goes. Much as we love the stock, it may be easier to get short near the top than to grab the tiger by the tail on the ascent. My rally target, which I have previously shared with lurkers so that we might all feast, is $418.58. That’s a major hidden pivot, and it is all but guaranteed to show some stopping power. So confident am I that GOOG will reach that price -- and then reverse direction -- that I may forego the usual penny-ante stop-loss to give the short some room to work.

My preference would likely be to short the stock rather than buy put options, since they would be way out of our usual price range. Over the last ten years, we’ve rarely bid more than a couple of bucks for a put or call, and we’ve never bought a Leap. The options game is heavily stacked against the retail customer, but the odds grow even more daunting the farther out in time you go. Buying Leaps is tantamount to increasing your bet size against a considerable house edge.

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Not to discourage you, but if GOOG were to explode today, reaching our $418 target, the December 420 puts would be selling for around $1,700 apiece, the December calls for about $1,600. I’ve worked this out on my Option Calculator (above) using a 31.50 volatility for near-the-money December puts – about right according to TradeStation. You can see why premium sellers are always favored to win in this game. If you short December 420 straddles for $3,300 apiece when the stock reaches the target, the position would be profitable with the stock trading anywhere between $387 and $451 at expiration. The margin on this naked-short position would be quite high, of course, but you could cut it down to size by buying a December 390 put (for around $7) and a December 450 call (for around $7) for every straddle shorted. That would leave you with an elongated butterfly spread (aka, “the ’fly”) and a net credit per spread of about $1,900, assuming the strangle could be purchased for $11. The spread would yield a profit anywhere between $401 and $439, with a maximum $1,900 gain at $420. A loss is possible outside of that range, but I’ll leave it to you to calculate how much. A riskier way to play it would be to buy the December 450 calls now for about $2.50, then do the rest when the stock reaches $418. Or, you could forego/delay buying the puts, leaving yourself unhedged to the downside.

You won’t be quizzed on this stuff, but it might be worth your time to work out the P&L for the position over a $50 price range. Incidentally, the calculator is an indispensable item if you trade options frequently. Larry McMillan sells them at his Web site for $125, but if you mention Rick’s Picks you’ll receive a 20% discount.