Alphabet Stock Drops, But Huge Unusual Call GOOG Options Activity Highlights Its Value

Alphabet Inc (GOOG) stock has been tumbling lately. The stock is at a three-month low. But some institutional investors are buying out-of-the-money call options, given today's unusual activity. That signals they may see this dip as a trough and see GOOG as a good investment.

GOOG is trading at $288.93 today, down from recent peaks of $309.41 on March 17 and $314.90 on Feb. 20, and well below its three-month high of $344.90 on Feb. 2. That was right before its Feb 4 Q4 earnings release.

Today's call option activity may be as a result of this new low activity. Let's look at this - but first, review what analysts are saying about GOOG stock.

GOOG Price Targets

After Alphabet announced its Q4 results, the market got spooked about this huge increase in capex spending the company was planning. Alphabet said it now expects to spend $175 billion to $185 billion, up from the $91.4 billion spent in 2025.

I discussed this situation in a Barchart article on Feb. 8, “Why Alphabet's Free Cash Flow Could Survive, Despite the Market's Fears - How to Play GOOGL.”

I showed that, based on its strong operating cash flow, despite much higher capex spending plans, GOOG stock could still be worth $377 per share. That's over 30% higher than today's price.

Similarly, 68 analysts surveyed by Yahoo! Finance have an average price target of $359.53 per share, +24% higher. Barchart's analyst survey PT is $379.21, close to my price target.

The point is that GOOG stock may be undervalued. That could be why there is so much activity in out-of-the-money (OTM) GOOG call options today.

Unusual Call Options Activity in GOOG

This huge, unusual call options activity today is highlighted in today's Barchart Unusual Stock Options Activity Report. It shows that over 9,900 call options contracts have traded for the period ending May 1, 37 days from now.

Note that this volume of call options is over 57x the prior number of call options outstanding at the $320.00 strike price. That usually indicates that buyers initiated these trades, as they are bullish on GOOG stock.

In fact, investors are willing to pay $3.20 for these calls, making the breakeven point $323.20. That's over 11.8% higher than today's price, with just over a month for GOOG to rise to this point.

In other words, buyers of these calls must be fairly bullish. On the other hand, sellers of GOOG calls at this price get to make an immediate yield of over 1.1%:

  $3.20/$288.93 = 0.01107 = 1.107%

That shows they may believe that it's worthwhile to sell their shares at $320.00, especially on a covered call basis. They also have the potential of making an extra return if GOOG rises to $320.00:

  Total potential return:  10.75% capital gain +1.1% income = 11.85%

The point is that they may see it's worthwhile to sell their shares for a potentially higher total return, even if GOOG stock doesn't rise to $320 by May 1.

Options Risks

Investors should be careful in following this covered call play. For one, if you sell OTM calls on shares you already own, it's possible that GOOG could rise much further than $323.20. That means you might leave potential upside on the table.

On the other hand, it's very risky to buy OTM calls. You could lose 100% of your investment if GOOG does not rise to $320 by May 1. Note that there is less than a 20% chance this will occur, based on the 0.1969 delta ratio.

Nevertheless, GOOG stock looks deeply undervalued here, based on its strong cash flow, analyst price targets, and its low price. It could be a good point to buy in for long-term value investors, whether using call options or not.