Goldman Sachs (GS) Credit Spread

This call credit spread is a bearish position based on resistance levels

By John Kmiecik, InvestorPlace Contributor

With unemployment numbers being released this morning, it is sure to have some type of effect on the market. In fact, many companies, just like an economic report, can affect other companies in their sector just by what they say or what is released. Here is a trade idea on a company that has influenced many others in the past and probably will continue to do so in the future.

Goldman Sachs  (GS): Call Credit Spread

The trade:  Sell the September 160/165 Call Credit Spread (selling the September 160 call and buying the September 165 call) for $1.00 or better.

The strategy: The maximum potential profit for this trade is $1.00 if GS is trading below $160 at September expiration. Both call options would expire worthless. The maximum loss is $4.00 ($5 – $1) if GS is trading above $165 at September expiration. Breakeven is $161.00 at expiration based on a credit of $1.00.

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The rationale:
Goldman Sachs is well-known in the banking and brokerage world. The banking giant has had a mixed bag of earning releases over the last several quarters. Just a few days ago, their European division said first-half pretax profit fell 60% due largely to employee compensation. No one can be certain on how that will affect their next quarter bottom-line but it certainly cannot be helpful. It also seems that there is a current or former employee being fined or accused of some wrong doing quite often. The latest was that an ex-employee was fined $500,000 for hiding trading positions. What’s going on over there?

If we look at the chart, the stock has been in a downtrend for about a month now. Just this week, the stock has attempted to rally off of its most recent lows and for the sake of this trade idea profiting, it could be running out of steam. There is an area of resistance right around $160 from previous pivot levels that the stock may have trouble getting through. The 50-day simple moving average has currently settled in that area as well which should provide an extra level of resistance. When something rises it must come down again especially if there is resistance in the way.


No positions held in GS. If you are interested in a free trial of my LIVE options trading room visit:


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