Google Gambling: The Worst Odds on Wall Street

Google Gambling: The Worst Odds on Wall Street
By Jeff Clark
October 18, 2007

Las Vegas is no match for this...

When it comes to gambling, Sin City runs a distant second to Wall Street. And the speculative fever is running high on the street today.

Google (GOOG) announces earnings after market close today. That alone is a recipe for volatility. But when you have an earnings announcement combined with tomorrow's option expiration, well, even Father Flannigan would have a tough time resisting the urge to make a wager. And the bookies are loving it.

Consider this...

Google closed yesterday at just over $633 per share. The October 640 calls, which give buyers the right to buy Google at $640 per share, and expire tomorrow, cost $14. In order to make money on this bet, Google needs to be above $654 per share on Friday afternoon. In other words, anything less than a $21 rally in the stock and this bet is a loser.

Betting on the downside is equally as expensive. The Google October 630 puts, which give you the right to sell the stock at $630 per share, are trading for $15. This bet is only profitable if the stock falls below $615 by Friday afternoon. So gamblers need an $18 decline in GOOG in order to break even on this bet.

Trading these options is a horrible bet no matter how bullish or bearish you are on Google. Not only does the stock have to move in the right direction, but it also has to move enough to cover the "point spread," to make up for the price you're paying for the option.

On the other hand, the bookies... I mean, option market makers... who take the other side of these bets profit as long as GOOG stays somewhere between $601 and $669 (the combined option premium of the call and the put is $29). Somehow, I like their odds better.

But here's the really crazy part...

The Google October 670 call options are trading for almost $5. Speculators buying this contract only profit if GOOG jumps above $675 per share – a gain of $42 – by Friday afternoon. The October 590 puts are trading at $4, and require Google to drop $47 to turn a profit.

You're probably thinking that nobody would be crazy enough to make those bets. Funny thing though, volume on all of Google's October option series was way above normal yesterday.

It turns out that there are a lot of crazy gamblers in this world. And they're not all in Vegas.

Best regards and good trading,

Jeff Clark

Wall Street Desperate for Commodities Traders
JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and BNP Paribas SA say oil, wheat and metals traders are Wall Street's hottest commodities.

Banks and securities firms hired a record 450 people for commodities this year, up 33 percent from 2006, according to Options Group, the New York-based recruitment and consulting firm that has tracked the industry since 2002. While the increase is equal to only 3.4 percent of the 13,100 new hires in the securities industry last year, commodities traders are so coveted that headhunters are turning to fired mortgage bond salesmen to fill the help wanted. Read on...

Foreigners Shun U.S. Assets: "No Way to Get Away"
"The bad news is that [the data] plainly show how vulnerable the dollar is to a continuation of the credit crunch-risk averse environment," said Alan Ruskin, chief international strategist at RBS Greenwich Capital. "There is no way to get away from the lack of corporate bond inflows, the foreign selling of US equities and the countervailing strong US purchases of foreign equities and bonds."

The Treasury said net sales of US market assets – including bonds, notes and equities – were $69.3bn in August after a revised inflow of $19.5bn during July. The August outflow exceeded the previous record decline of $21.2bn in March 1990. Read on...

•	China hits another high... PetroChina, China Mobile, China Unicom, China Fire & Security, Sinopec, China Life, Huaneng Power, CNOOC, Aluminum of China.
•	Beer and smokes advance... Boston Beer, Diageo, British American Tobacco, and Imperial Tobacco hit new highs.
•	Big banks falling... Citigroup, BB&T, and SunTrust at new lows.
•	Oil-sands blue-chip Suncor Energy hits all-time high... up 600% in past five years.

	Last	Change	52-Wk
S&P 500	1548.71	-0.84%	13.41%
Oil (USO)	65.89	2.95%	22.81%
Gold (GLD)	75.14	0.74%	28.29%
Silver (SLV)	136.90	-0.36%	17.61%
US Dollar	78.05	-0.18%	-10.41%
Euro	1.421	0.23%	13.50%
VIX	17.73	-6.09%	59.87%
HUI	413.34	0.70%	40.30%
10-year yield	4.69%	0.03	-0.09

Company	Sym	Industry
Richmont Mines	RIC	gold
Suncor Energy	SU	oil sands
China Mobile	CHL	telecom
PrimeWest Energy	PWI	energy trust
Sinopec Shanghai	SHI	Big Oil
Apple	AAPL	computers
China Life	LFC	insurance
Gildan Activewear	GIL	clothing
Imperial Tobacco	ITY	cigarettes
Telkom	TKG	telecom
Aluminum of China	ACH	aluminum
Pogo Producing	PPP	oil & gas
Roper	ROP	industrial equip
Huaneng Power	HNP	utilities
TheStreet	TSCM	publishing
GameStop	GME	video games
JA Solar Holdings	JASO	solar power
AK Steel	AKS	steel
PetroChina	PTR	Big Oil
OceanFreight	OCNF	shipping
China Fire & Sec.	CFSG	security
Ternium	TX	steel
FLIR Systems	FLIR	infrared
Hewlett Packard	HPQ	computers
Barnes Group	B	industrial equip
Hilton	HLT	hotels
Coca-Cola	KO	beverages
First Solar	FSLR	solar power
Sangamo	SGMO	biotech
CNOOC	CEO	Big Oil
Guess?	GES	clothing
Northrop Grumman	NOC	aerospace
BlackRock	BLK	asset mgmt
Provident Energy	PVX	energy trust
Boston Beer	SAM	beer
Eagle Bulk Shipping	EGLE	shipping
Taiwan Fund	TWN	Taiwan stocks
China Telecom	CHA	telecom
Telefonica	TEF	telecom
Elizabeth Arden	RDEN	makeup
British American Tob	BTI	cigarettes
China Petro & Chem	SNP	Big Oil
Navios Maritime	NM	shipping
China Netcom Group	CN	telecom
Meridian Gold	MGD	gold
Adobe	ADBE	software
China Unicom	CHU	telecom
Learning Tree	LTRE	education
Diageo	DEO	booze

Company	Sym	Industry
Palm Harbor Homes	PHHM	manuf homes
SunTrust	STI	bank
Retail Ventures	RVI	retail
Toyota	TM	Japanese auto
New York Times	NYT	newspaper
Stein Mart	SMRT	clothing
Leggett & Platt	LEG	furniture
Wet Seal	WTSLA	clothing
NVR	NVR	homebuilder
PokerTek	PTEK	gambling equip
Rite Aid	RAD	drug store
BB&T	BBT	bank
Tuesday Morning	TUES	discount retail
McClatchy	MNI	newspapers
Corus Bankshares	CORS	bank
Haverty	HVT	furniture
Citigroup	C	bank