Alphabet rebounds after record loss

Alphabet has lost nearly $500 billion in market value in the past ten days. The tech giant recorded its worst single-day drop in history following its latest earnings report. Since then, the stock has recovered only 1.5% of that lost value.

The muted recovery occurred despite strong financial results. Alphabet reported its 13th consecutive quarter of double-digit revenue growth. Google Cloud revenue more than doubled during the period. The company’s earnings were the first major negative indicator for the artificial intelligence investment trend. This report preceded the recent election and the growing scrutiny of Nvidia CEO Jensen Huang.

Alphabet shares remain down 11.3% from their pre-earnings close of $324.89. On Monday, Google launched two new systems built on its custom AI chip, the TPU. The company continues to evolve its technology while the debate over AI and search persists.

CNBC contributor Spina argues the stock may have found a floor. The size of the initial drop leaves room for a return toward pre-earnings levels. Spina is currently long a December 18 call spread. This trade involves buying a 285 call and selling a 300 call for a debit of roughly $7.07.

Alphabet’s 30-day implied volatility closed at 35% on Monday. This level is higher than 44% of days over the past year. The volatility sits in the mid-range, making both buying and selling premium viable strategies. Spina chose the higher-conviction call spread due to the weak recovery so far.

The trade has a breakeven point of $292.07. This is 1.4% above Monday’s close and 10% below pre-earnings levels. The theoretical probability of profit is 47%. The maximum profit is $793 per spread if the stock closes at or above $300 on December 18. The maximum loss is $707 if the stock closes at or below $285.

Nvidia’s results on November 17 could influence the tone for the AI sector. Rates, energy prices, and data center construction scrutiny remain potential headwinds. The trade expires in 39 days and assumes the stock gap at least partly closes during that period.