The market has been pretty tame during the past couple sessions despite several companies releasing their earnings. Of course, just because a company announces positive earnings doesn’t necessarily mean the stock will move higher, and vice versa should it report a disappointment.
Here is a trade idea on a company that has proven in the past how resilient it can be:
Goldman Sachs (GS — $161.50): Put Credit Spread
The trade: Sell the August 150/155 Put Credit Spread (selling the August 155 put and buying the August 150 put) for 80 cents or better.
The strategy: The maximum potential profit for this trade is 80 cents if GS is trading above $155 at August expiration. The maximum loss is $4.20 ($5 – $0.80) if GS is trading below $150 at August expiration. Breakeven is $154.20 at expiration based on a credit of 80 cents.
The rationale: Goldman Sachs said Tuesday that its second-quarter profit doubled and revenue surged 30%. The stock gapped higher at the open Tuesday before finishing in negative territory, due largely to the fact that questions remain about the bank’s future earnings.
That said, Goldman is not new to adversity, and it seems like it always finds a way to overcome pending and current issues by adapting to changing environments — like cutting 2% of its staff over the past year.
Click to Enlarge Taking a look at the chart, GS stock is currently trading above most of its critical moving averages, which can be construed as a bullish sign. The chart also shows a minor support level just above $155 from some previous pivot levels that could come into play in trying to keep the stock from moving below the sold strike ($155).
If the stock can convincingly close above the $160 area a couple of times, it might just continue to climb higher despite the critics’ concerns and let you collect the premium.
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.