Goldman Sachs: Make these 10 trades right now for a guaranteed profit whether a stock soars or crashes after it reports earnings
for the same stock at the same strike price and expiration date. If the stock either rises or falls past the strike price by more than the premium paid for both the call and the put, the trade is profitable.
But even though success isn't assured from this strategy, Goldman Sachs believes that it's a good time for experienced traders, novices, or those who've never bought options to try a straddle trade, given that market volatility should be elevated as companies report Q4 earnings. Current options pricing implies that stocks in the S&P 500 that haven't yet shared their quarterly results will move an average of 4.5% after reporting, which Vivek noted is under the long-term average implied move of 5.2%. However, companies that have already posted earnings this quarter have moved about 4.3% the day after, which is above the historical average of 3.6%.
Essentially, current options pricing for these stocks suggests that they'll be less volatile than they've been in the previous eight quarters. If their volatility is closer to what it's been historically than the market's current implied volatility, then straddle trading their options could be profitable.
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