Alphabet (Google) Image by Markus Mainka via Shutterstock

Out-of-the-money (OTM) Alphabet, Inc. (GOOGL) put options can give a 1.77% to short-sellers over the next month. Moreover, Alphabet stock has +32% upside based on an FCF-based target. Buying in-the-money calls is another potential play.

Alphabet closed at $309.29 on Friday, Dec. 12. That's slightly below the recent peak of $323.44 seen on Nov. 25. But it could be worth as much as $408.27 over the next year, as I recently wrote.
 

Image Source: Barchart - Alphabet stock over the last six months, as of Friday Dec. 12, 2025

Today's article will discuss ways to play Alphabet stock's upside on a relatively safe basis by using leverage with out-of-the-money (OTM) put options and in-the-money (ITM) calls.

I discussed shorting the $275.00 strike price put option expiring Friday for a 1.764% yield in a Nov. 11 article. As Alphabet closed above this strike price, the short-put investors would not have had their account assigned to buy 100 shares of Alphabet at $275.00. So, this was a successful short play with good income. 

However, when the play was initiated on Nov. 11, Alphabet was at $289.58. So, it's up +6.8% over the last month. That's better than the OTM short-put return of 1.764%. 

So, why not use the income from shorting OTM Alphabet puts to participate in Alphabet's upside using in-the-money (ITM) calls? This article will show how to do this. First, let's review the upside price target in Alphabet stock.

Alphabet Price Targets (PT)

In my last article, I showed that, based on Alphabet's strong free cash flow (FCF) margins, it could be worth over $408 over the next 12 months. For example, last quarter, its FCF margin (i.e., FCF/revenue) rose to 23.9% from 19.98% a year earlier. Its average over the last year was 19.08%, but that included one quarter with a low outlier.

Therefore, assuming Alphabet generates 22% of revenue as FCF, it could generate about $100 billion in FCF in 2026. But, just to be conservative, let's assume it might make as low as $90 billion in FCF.

Therefore, using a 2.0% FCF yield, i.e., 50x FCF, Alphabet stock could be worth between $4.5 trillion and $5 trillion over the next year:

• 50 x $90 billion FCF = $4,500 billion; 50 x $100 billion FCF = $5,000 billion.

Today, Alphabet's market cap is just $3.746 trillion, according to Yahoo! Finance. In other words, Alphabet could be worth about $1 trillion, or +26.8% more ($4.75 trillion / $3.746 trillion = 1.268). That implies that the price target (PT) is 26.8% higher:

• $309.29 x 1.268 = $392.18.

And the peak PT could be as high as 33.5% above the current market value (i.e., $5 trillion / $3.736 trillion), or $412.90 per share. So, on average, we could expect a PT of over $400 per share (i.e., $402.54 per share).

Moreover, 33 analysts surveyed by AnaChart show that the average price target is $343.47. The bottom line is that Alphabet stock looks undervalued at the moment. 

Shorting OTM Puts

One way to play this, as discussed earlier, is to sell short out-of-the-money (OTM) puts in near-term expiry periods. For example, the Jan. 16, 2026 expiry period shows that $295.00 strike price put option has a premium of $5.23 per put contract.

That provides a short-seller of this strike price, which is 4.62% below the closing trading price, an immediate yield of 1.77% (i.e., $5.23 / $295.00 = 0.0177).
 

(Click on image to enlarge)

Image Source: Barchart - Alphabet puts expiring Jan. 16, 2026, as of Dec. 12, 2025

This means that an investor who secures $295.00 with their brokerage firm can immediately make $523.00 (i.e., 1.77%). As long as Alphabet stays over $295.00 for the next month, the collateral will not be assigned to buy 100 shares of Alphabet at $295.00.

Moreover, as discussed earlier, this income can be used to partially fund buying in-the-money (calls) at a later expiry period. That way, an investor can gain leveraged exposure, in a relatively safe manner, to any upside in Alphabet stock.

Buying ITM Alphabet Calls

Now, let's look at buying ITM calls. For example, the $295.00 call option expiring on July 17, 2026, shows that the midpoint premium is $44.93. Note that this strike price is in-the-money (ITM) by $14.29 (i.e., $309.29 - $295).
 

(Click on image to enlarge)

Image Source: Barchart - Alphabet calls expiring July 17, 2026, as of Dec. 12, 2025

That provides some downside protection for an investor, in case Alphabet stock stays flat or falls. Moreover, if the investor can repeat this one-month OTM short-put play 7 times until July 17, the potential income is $36.61 (i.e., 7 x $5.23 received each month, including Jan. 17). That covers much of the $44.93 price paid for the $295.00 July 17, 2026, call option:

• $44.93 call price - $36.61 put income received = $8.32 net cost.

Just to be conservative, let's assume the net income received is just $29.93 over the next seven months:

• $44.93 call price - $29.93 put income = $15.00 net cost.

And if Alphabet stock rises to just $370 over the next seven months, the intrinsic value of the $295.00 calls will be:

• $370 - $295 = $75.00 per call.

That implies that the net return will be:

• $75 / 15 - 1 = 5 - 1 = 4 = 400% upside.

Moreover, just to be conservative, let's say that Alphabet stays flat in seven months at $310 per share. The intrinsic value of the call option is just $15 (i.e., $310 - $295).

So, the investor paid $44.93 for the OTM calls, received income of $29.93 from OTM puts, but could potentially sell the July 17, 2026 call at $15.00 in seven months. Here is the net result:

• $44.93 - $29.93 = $15.00 ITM call option cost; $15.00 received from call at its intrinsic value = $0 profit.

In other words, there is no loss, and this play has good downside protection. Any net price increase over $309.29 could result in a potential profit. That shows that shorting OTM Alphabet puts and also buying ITM calls may be an attractive leveraged way to play Alphabet.

More By This Author: