Google’s (GOOG) announcement of its acquiring YouTube for $1.65 billion in a stock-for-stock transaction may be a good strategic move in the long term, but for the short term the Google/YouTube deal may not be so hot for Google’s stock price.
Google is paying $1.65 billion for a company that is not profitable. Based on Google’s P/S (price-to-sales) ratio of 15 and P/E (price-to-earnings) ratio of about 50, the YouTube deal would need to add about $100 million dollars in revenue to Google’s top line and $30 million dollars to Google’s bottom line for the acquisition to make sense in the near term.
This milestone probably won’t happen for several months, so the best guess is Google’s stock price will remain stagnant for a few months, which is basically what it has been doing for the last 11 months, stuck in a range from about $350 to $450. Note: The percieved value of Internet web sites in this vein has been increasing. MySpace was sold for about $600 million and its closest competitor might be on the chopping block for twice that now.
Based on this, an iron condor option strategy might make sense. Using PowerOptions‘ options back testing tool SmartHistoryXL, we searched for GOOG iron condor positions with a profitable range from $350 to $450 selecting positions the Monday after options expiration with all options expiring in the next month.
The results of the SmartHistoryXL options back testing are shown below:
| SmartHistoryXL search for GOOG Iron Condor | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Select Date |
Expire Date |
Long Put Strike |
Short Put Strike |
Short Call Strike |
Long Call Strike |
%Return | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/22/2006 | 6/16/2006 | 300 | 320 | 480 | 500 | 5.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6/19/2006 | 7/21/2006 | 320 | 330 | 480 | 490 | 5.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/24/2006 | 8/18/2006 | 320 | 340 | 470 | 490 | 4.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8/21/2006 | 9/15/2006 | 320 | 340 | 450 | 470 | 3.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Analysis
All selected GOOG iron condor positions were profitable with an average return of 4.9%, and over a fairly short time span of about a month. All selected positions had a profitable range from $350 to $450.
PowerOptions provides a free 14-day trial of its service. So join PowerOptions today, and you too can start reaping the benefits of the iron condor strategy for selecting stock options positions.
PowerOptions provides Internet based tools for analyzing stock options with specific search criteria and for finding potentially lucrative option income. For those seeking to execute a stock options investment strategy for their personal portfolios, PowerOptions provides an Internet based search engine for finding potentially lucrative income producing stock options positions.
[tags]options back testing, option income, stock options, iron condors, investment strategy[/tags]