OPTIONS STRATEGIES FOR GOOGLE

Goldman Sachs notes Google's shares have moved an average of plus or minus 5 percent over the last eight quarters on earnings day alone.

The stock fell more than 9 percent after year-end results in January, which were hurt by rising costs and slowing advertising sales growth and the added punch that came from Microsoft revealing its industry-shaking bid to acquire Yahoo.

This Friday, April options go off the board and stop trading at the close, which could exaggerate what happens to Google's implied volatility. Implied volatility measures the magnitude of projected stock movements based on option prices.

Implied volatility for the front month options was climbing to about 70 percent near midday on Monday and could top over 80 percent by Thursday, said Randy Frederick, director of derivatives at Charles Schwab in Austin, Texas. A high level of implied volatility indicates a greater degree of uncertainty about Google's future share price in the aftermath of its earnings.

During the last earnings report in January, front-month implied volatility increased from the high 30 percent range in the days heading into the earnings report to over 50 percent just before Google reported, he said.

Some investors may be waiting until the last minute to snap up April puts and calls on the Silicon Valley stock, as the options would normally become less expensive as the time before April options expiration dwindles.

"As the time value erodes and the April option prices become cheaper, this could entice more buyers to speculate on Google's earnings," said options analyst Brian Overby.

"This may drive up Google's implied volatility and will make the shares even more volatile than normal around earnings," said Overby, senior options analyst at online brokerage TradeKing in Boca Raton, Florida.

In an April 9 research report, Goldman Sachs strategists suggest owning April straddles or strangles -- option strategies that combine both puts and calls -- ahead of the earnings to catch a potential market or stock-specific move.

For investors who believe Google shares are poised to rebound, Credit Suisse Palsson recommends buying a June $480 call or, alternatively, a June $480/$550 call spread that would return about 12 percent if Google went above $550 through June.

Then again, this could be an earnings period of many negative surprises. For Google shareholders who don't want to sell the stock but can't stomach its volatility, Frederick advises buying an April collar. A collar is a spread strategy that combines a covered call and a protective put, which gives the right to sell the stock at a given price and time.

"This strategy works well if you are concerned that the stock may trend down in the short run but you believe the long term prospects are favorable," he said.

(Additional reporting by Eric Auchard in San Francisco, editing by Gerald E. McCormick)

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