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How Options Saved My Google Trade: Najarian

Kimihiro Hoshino | AFP | Getty Images

Traders took profits early Thursday in Google, and it was the right move.

This is a great stock, and it had been running like a champ ahead of its earnings release. I was riding that rally with call spreads, an option strategy that lets you really leverage a pop.

But this morning, the options paper showed traders jumping off the bandwagon. Our data systems at OptionMonster detected heavy selling in the October 800 calls early in the session, which means that traders didn't see much chance of the stock ending the week above that level.

That activity prompted me to exit my longs, as I mentioned on CNBC. And it wound up being a good move, given the company's premature release of quarterly results that tanked the stock !

The puts caught fire after that, and premiums shot up as investors scrambled for protection. The October 700s, which started the day more than $50 of out the money were quickly in play and at one point traded for more than $60.

Overall, Thursday was a pretty crazy day for Google, which was halted down 9.03 percent at $687.30 at the time of this writing. Even before they stopped the trading, more than 160,000 option contracts had changed hands in the name. That's triple the daily average, and made it the fifth busiest stock on our systems.

—By CNBC Contributor Jon "DRJ" Najarian

Additional News: Google's Miss Highlights Big Worry on Wall Street

Additional Views: Google's Big Miss Just Another Reason to Sell: Pro

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Jon 'DRJ' Najarian is a professional investor, CNBC contributor, and cofounder of OptionMonster.com.

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