Goldman Sachs Group Inc (NYSE:GS) is rallying hard ahead of Thursday morning’s earnings announcement. Shares of the investment bank have come a long way in the past few years and with this week’s breakout, GS stock appears poised to continue climbing.
If its upcoming earnings release doesn’t derail the momentum, that is.
Let’s size up the charts and options mart for Goldman Sachs to see if there are any clues to be had heading into the big event.
On the technical front things look peachy. Since stumbling out of the gate in 2014, shares of GS have recovered nicely. This week’s pop drove GS to a new seven-year high and a test of the $200 mark looks inevitable. The trends on both the daily and weekly chart are pointing higher.
Goldman’s relative strength versus the broader financial sector has varied quite a bit over the past few years. Currently GS stock is on a hot streak besting the performance of its sector so that’s a positive.
Action in the options market has been tame heading into tomorrow’s earnings bonanza. While the post-earnings gap for GS is usually mild we still typically see some type of ramp in implied volatility beforehand. Not so this go around, however — volatility expectations have seen nary a whimper.
If you were hoping to sell juiced-up GS options ahead of the number, prepare to be disappointed.
GS Trade for the Earnings Junkie
In light of the otherwise flaccid option premiums, would-be earnings traders may consider passing on Goldman Sachs earnings altogether. You can probably find more exciting opportunities elsewhere.
Those wanting to place their GS bets — cheaper options be darned — might consider selling a May iron condor. Regardless of current implied volatility levels, option prices tend to be overpriced heading into earnings, so if you’re waffling on how to structure an earnings trade, error on the side of selling options.
Sell the May $210-$215 bear call spread and the May $185-$180 bull put spread for a total net credit of 77 cents. Consider it a bet GS remains between $210 and $185 for the next few weeks. The post-earnings volatility crush should help to offset any type of minor gap we see in GS stock tomorrow.
The maximum reward is limited to the initial 77 cents. The maximum risk is limited to the distance between strikes minus the net credit, or $4.23, and will be lost if GS rises above $215 or below $185 by expiration.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
