How to play the pullback in Alphabet, using options to limit your risk during the tech sell-off

Alphabet Inc. (GOOGL) is strategically positioned to capitalize on the growing demand for AI and cloud services, driven by its robust investments in AI technologies and the continued dominance of YouTube as a leading digital platform. The recent pullback in GOOGL’s stock price offers an attractive entry point for investors looking to gain exposure to these high-growth areas. We’ll review an options strategy to get long exposure while limiting overall risk. Both the charts and fundamentals align well with the potential for continued appreciation in Google’s AI and cloud segments. GOOGL has recently pulled back slightly within a strong bullish trend, creating an attractive risk reward to seek long exposure. The shares were down 1.5% on Wednesday, but are still up nearly 30% for 2024. Broader tech shares have been hit this week as investors rotate into other areas of the market. The stock has consistently outperformed the market, and the recent dip offers a chance to get back on board. The MACD indicator remains in bullish territory, indicating that momentum is still in favor of the bulls. The pullback appears to be a healthy consolidation within an overall upward trend. GOOGL trades at 24 times forward earnings, which is reasonable given its strong growth prospects. The company is expected to grow EPS by 18% and revenues by 11%, significantly outpacing the average S & P 500 stock. Additionally, GOOGL boasts industry-leading net margins of 25.9%, reflecting its efficiency and profitability. These robust fundamentals support the potential for continued appreciation in GOOGL’s stock price. The trade Options on Alphabet Inc. (GOOGL) are not too cheap or expensive based on their implied volatility. To capitalize on the recent pullback and anticipated continued growth, I bought the August 30 $180/$200 Call Vertical for a $7.70 Debit. This entails: Buying the August 30 $180 Calls @ $10.65 Selling the August 30 $200 Calls @ $2.95 Using a call vertical spread allows us to benefit from the bullish trend while limiting our risk. The total potential profit on this trade is $1,230 per contract, if GOOGL is above $200 at expiration, with a maximum risk of $770 per contract if GOOGL is below $180 at expiration. This strategy aligns with our bullish technical and fundamental thesis for GOOGL, leveraging the current market environment for a debit vertical spread. DISCLOSURES: (Long GOOGL) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.