With election day mercifully here, it appears that Hillary Clinton is the heavy favorite to become the next President of the U.S. While one can debate the dubious merits of either of the major candidates, one certainty is that a President Hillary Clinton will be “beholden,” as Libertarian Party candidate William Weld so succinctly described it. This means that it will payback time for the large donors, with one of the largest being Goldman Sachs Group Inc (NYSE:GE).
But rather than lament the “pay to play” culture that embodies all things Clinton, I think it is more judicious to embrace that culture and profit by taking a hedged bullish stance in GS.
In her paid speeches for $225,000 per appearance, Hillary Clinton sounded more like a managing director for Goldman Sachs rather than a political candidate, according to Politico. While CNN’s source described her speech as neither “controversial or memorable.”
Marc Mezvinsky, the son-in-law of Hillary Clinton and a former Goldman Sachs employee, lost big in his hedge fund betting on Greek debt and had to finally shutter it. Goldman Sachs CEO Lloyd Blankfein was an investor in the doomed fund and also allowed his name to be used in marketing the fund. Payback will be coming.
Goldman Sachs was coined the Vampire Squid for good reason, with a long reach into the inner workings of the U.S. Government. I expect that influence to continue in an even bigger way if Hillary Clinton is indeed elected President. Look for some key positions to be filled by former Goldman Sachs directors over the coming months.
So with their influence likely assured for at least the next four years, I expect GS stock to feel the benefits going forward. Yesterday’s price action in Goldman Sachs stock, with shares jumping more than 3% on news the FBI will not prosecute Hillary Clinton, was emblematic of those benefits.
On a longer-term basis, GS has solid support at the $169 level, with shares convincingly breaking through that area in mid-October. I expect this level to hold over the coming months.
Click to Enlarge So to position, a bullish put credit spread is the way to play.
GS Stock Options
Buy the GS Dec $165 puts and sell GS Dec $170 puts for a 75 cent net credit. These options are the traditional monthly options that expire Dec. 16.
Maximum gain is $75 per spread with a maximum risk of $425 per spread. Return on risk is 17%. The short strike is positioned 6% out of the money and near the $169 support level.
I would look to close out the position on a meaningful break through the $169 support level while looking to let the spread expire worthless and keep the initial $75 credit if GS stock behaves.
As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at tbiggam@deltaderivatives.com
