Options Corner: Monday Blues Can't Hide Alphabet Stock's Potential Upside Pivot

President Donald Trump‘s mounting fierce criticism against Federal Reserve Chair Jerome Powell is unnerving the marker and taking down tech juggernaut Alphabet Inc GOOGGOOGL.

Still, there may be a chance to extract quick profits for bold and opportunistic traders.

To be clear, no one should dismiss the anxiety surrounding the latest market rumblings. In a Truth Social post, Trump previously signaled discouraging intentions for the Fed chair.

"Jerome Powell is always too late and wrong. His termination cannot come fast enough,” Trump said.

Trump initially nominated Powell in 2017. President Joe Biden appointed Powell to another four-year term in 2022. U.S. presidents do not have the legal authority to fire a Fed chairman before the end of a term, which for Powell is May 2026.

At the heart of the matter is the benchmark interest rate, with Trump blasting Powell for not cutting borrowing costs despite falling oil prices and easing inflation concerns. The president further stoked the flames of discontent, remarking during a public appearance with Italian Prime Minister Giorgia Meloni that he could remove Powell "real fast" if he so wished.

Of course, the political drama only underscores a far more pressing concern: the White House's economic policies — particularly related to tariffs against key economic partners — threatens to sink the nation into a recession, potentially sometime this year. For a company like Alphabet, which depends heavily on advertising revenue, a downturn would be problematic; hence, the volatility in Alphabet’s stock.

Despite the wide-ranging concerns, management has a chance to frame the narrative properly with the company's Thursday after-close earnings disclosure. One area that may convince investors to take a stab at Alphabet stock is the broader integration of artificial intelligence. By embedding AI across products to reduce costs and improve engagement, along with generative AI monetization efforts within the Search platform, the tech giant may help right its own ship.

Winners Like Alphabet Don't Stay Deflated for Too Long

Trump perceives tariffs as key to winning trade deals and often discussed the strategy on the campaign trail. And that's the main takeaway for Alphabet from a stock trading perspective: it's a winner and winners don't stay deflated for too long.

However, with headline metrics such as a year-to-date loss of 22%, it's easy for pessimism to cloud the discourse. Part of the reason for this tendency has to do with the way traditional analyses — whether technical or even fundamental — are structured. Specifically, standard methodologies rely on continuous-time signal processing frameworks. That's a complicated way of saying that there's no such thing as a "good" stock price or "bad" revenue.

Instead, metrics like share price or revenue represent scalar realities: they are what they are. The problem, of course, is that many fall into the trap of interpreting a discrete outcome — for example, "it's a good time to buy" — from a continuous signal without defining what exactly is "good."

To get around this dilemma, investors can deploy a process called abstraction, essentially compressing continuous events into discrete events, thus generating a discrete-event analysis for discrete conclusions. Personally, I deployed a quasi-binary compression for the purposes of calculating a modified first-order Markov chain model on Alphabet stock.

What I noted was that in the past two months, the shares have printed in totality (meaning not necessarily in order) a "2-8" sequence: two weeks up, eight weeks down. The 2-8 sequence is rare, flashing only four times in the past decade. What's significant in my opinion is that in three out of the four cases, Alphabet popped sharply higher within the first two weeks of the 2-8 signal flashing.

In any other circumstance, one would consider the above assessment statistically fragile. But price action tends to marshal human emotions, which may lend credibility to this potential upside pivot.

Plotting a Bullish Strategy for Alphabet

With the prospect of a bullish reversal on the horizon — and especially with an earnings report coming — bold traders may be enticed to consider an out-the-money (OTM) wager as opposed to a hedged bet. Every good quarterback knows when it's time to go deep and this might be such a moment.

At this moment, the cheapest vertical spread which in my view touches the boundaries of rationality is the 157.50/160 bull call spread for the options chain expiring May 2. This transaction involves buying the $157.50 call (at an ask of $265) and simultaneously selling the $160 call (at a bid of $193), resulting in a net debit paid of $72, the most that can be lost in the trade.

Should GOOG stock rise through the $160 short strike price at expiration, the maximum reward is $178, or a payout of over 247%.

It's a highly speculative, capped-risk, capped-reward setup. The justification for the trade is that in 75% of the time when the 2-8 sequence flashes, the median return (under the positive pathway) two weeks out is 13.15%. Coincidentally, the timing of the earnings release lends loose support to the speculation that something special could be cooking for Alphabet stock.

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