Plow Through Goldman Sachs’ Bad Press

by John Kmiecik | October 22, 2012 8:29 am

Whether you are a celebrity or not, nobody wants bad press, but that is exactly what Goldman Sachs (NYSE:GS[1]) is getting, warranted or not.

However, if a trader looks beyond that and focuses on what really matters — like the fundamentals of the company and the direction in which the stock is moving — he or she might see a potential trade idea. Plus, you know what they say: Any press is good press!

Goldman Sachs (NYSE:GS — $123.62): Long Calls

The trade: Buy the November 125 calls for $2.80 or less.

The strategy: Buying a call probably is the most fundamental option strategy. A long call can profit if the stock rises and the call premium increases to an amount more than was paid. Maximum profit is essentially unlimited with a long call because the stock can continue to rise, and the maximum loss is $2.80 or whatever was paid if GS finishes below $125 at November expiration. Breakeven is at $127.80 at expiration based on a cost of $2.80.

The rationale: Goldman Sachs has been in the news plenty lately. It currently is fending off reports from an ex-employee that claims GS didn’t put its clients first, among other things. The company is denying these claims. One would think these claims might affect the price of Goldman Sachs stock, but it hasn’t thus far.

Goldman Sachs also recently reported earnings which handily beat estimates. Even a Citigroup (NYSE:C[2]) analyst said it was “a very solid performance in a generally poor environment.” The bank has been cutting expenses and shedding jobs to lower costs.

GS stock has been on an uptrend since the beginning of September, when it was able to clear the daily 200 simple moving average. Now it has formed a relatively tight base around $124 and looks like it wants to continue higher. It’s hard to say how long this move higher will last, but a reasonable target for the stock is right above $128, which was a previous pivot high it set back in March of this year. Bad press? Nah … Just a stock in a solid uptrend!

As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.

  1. GS:
  2. C:

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