Google (GOOG) widget announcement good for traders

Google Inc. (NASDAQ: GOOG) is getting Wall Street's attention this morning after the company announced that it will begin distributing ads within "widgets" -- interactive capsules designed to bring more pizazz to Web pages -- in a move to cash in on the new internet phenomenon. This kind of an exciting announcement will often install a new floor for the stock price, at least until the preliminary returns are in. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on GOOG.

After hitting a one-year high of $558.58 in July, the stock lost some ground, but has been climbing back toward the mid-500's over the past few weeks. GOOG opened this morning at $539.27. So far today the stock has hit a low of $538.86 and a high of $546.68. As of 10:55, GOOG is trading at $546.57, up $11.30 (2.1%). The chart for GOOG looks bearish but improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $470 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just one month as long as GOOG is above $470 at October expiration. Google would have to fall by more than 14% before we would start to lose money.