GOLDMAN SACHS: Traders are reaping unusually large profits from earnings-related stock trades. Here are 15 picks for the remainder of the season.
Although 88% of the S&P 500 has announced, the opportunity to profit is not over because there is still the potential for earnings surprises to spur large stock moves. In fact, betting on outsized moves is more attractive now because options traders are pricing in smaller moves for the remainder of the earnings season.
Goldman equity derivatives strategists including Vishal Vivek have devised a strategy to take advantage of the volatility ahead. It includes 15 stocks where options-implied moves have fallen to "reasonable" levels relative to their historical price action. On average, traders anticipate these stocks will move 0.8% more after their upcoming earnings than over the past eight quarters.
Goldman's chosen strategy is a so-called options straddle that simultaneously bets on a stock's rally and decline using the same expiration date and strike price. It is designed to profit regardless of the direction a stock goes — as long as it moves by more than the premium paid. All 15 stocks below include data on the strike price and percentage move needed to profit from the nearest expiring straddle. Campbell Soup, for example, would be profitable if it rises or falls by at least 8% from its $51 strike price.
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