Alphabet Stock as Undervalued Opportunity, Favoring Short-Put Sellers for Income Generation

Alphabet Stock

Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) garnered positive results in the last quarter, showcasing increased revenue and margins. Consequently, some experts believe that GOOGL stock remains undervalued, making it an appealing option for short-put sellers seeking income opportunities.

Discussing the Strategy

One strategy involves selling short put options with a strike price of $135, expiring on Feb. 23. Initially priced at $1.01 per put, these options now trade around 30 cents, indicating a successful trade progression. Considering this, it seems prudent to roll over this trade at this juncture.

Analyzing Alphabet’s Performance

Alphabet’s fourth-quarter earnings report, released on Jan. 30, 2024, revealed a 13% year-over-year revenue increase, with full-year revenue up by 9%. Operating margins also saw an improvement, rising from 24% in Q4 2022 to 27% in Q4 2023. The company exhibited robust free cash flow (FCF), generating $69.5 billion in 2023, representing an average FCF margin of 22.6% based on its $307.3 billion revenue.

Future Growth Potential

Based on analysts’ projections of $342.4 billion in revenue for 2024, Alphabet could potentially generate $75.3 billion in FCF, assuming a consistent 22% FCF margin throughout the year. This estimation suggests a market value increase to $2.259 trillion, reflecting a 29% rise from the current market value of $1.75 trillion.

Income Generation Strategy

One approach for shareholders to capitalize on this potential growth is by selling out-of-the-money (OTM) put options with nearby expiry dates. For instance, looking at the March 8 expiration period, $135 strike price puts trade for $1.11, offering an immediate yield of 0.82% to the short seller. By leveraging $13,500 in cash or margin to sell one put contract, an investor could accumulate $444 by repeating the trade four times per quarter, translating to an expected return of 3.29%.


In summary, Alphabet stock appears undervalued, presenting an opportunity for income generation through the sale of short OTM puts while awaiting potential stock appreciation.

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