3 Options Strategies For Goldman Sachs Earnings Next Week

Goldman Sachs (GS) is due to report earnings this Tuesday before the opening bell. The Barchart Technical Opinion rating is a 72% Sell with a strengthening short term outlook on maintaining the current direction. Long term indicators fully support a continuation of the trend.

GS rates as a Strong Buy according to 9 analysts with 1 Moderate Buy, 3 Hold and 1 Strong Sell ratings. Implied volatility is 44.83% which gives GS and IV Percentile of 100% and an IV Rank of 100%

Today, we will analyze three different ideas:

1. A Short Iron Condor
2. A Bull Put Spread
3. A Butterfly Spread

Short Iron Condor

The first strategy is a short iron condor. An iron condor aims to profit from a drop in implied volatility, with the stock staying within an expected range.

When implied volatility is high, the wider the expected range becomes. Goldman Sachs’s IV Rank is showing 100%, which means this is the highest level of implied volatility in the last twelve months.

The maximum profit for an iron condor is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

Using the October 21 expiration, traders could sell the 270-strike put and buy the 265-strike put. Then on the calls, sell the 325 call and buy the 330 call.

Yesterday, that condor was trading around $1.15 which means the trader would receive $115 into their account. The maximum risk is $385 for a total profit potential of 29.87%.

The profit zone ranges between 268.85 and 326.15. This can be calculated by taking the short strikes and adding or subtracting the premium received.

Let’s take a look at another potential option strategy.

Bull Put Spread

Traders thinking that GS might have a positive response to earnings could just trade the bull put spread side of the iron condor.

Trading just the bull put spread side would involve selling the October 21st 270 put and buying the 265 put. This spread could be sold yesterday for around $0.65 or $65 in total premium. 

The maximum gain is $65 with total risk of $435 for a potential return of 14.94% with a breakeven price of 269.35.

The final idea we will look at is a butterfly spread.

Butterfly Spread

A butterfly spread is constructed by buying an in-the-money call, selling two at-the-money calls and buying an out-of-the-money call. The trade is entered for a net debit meaning the trader pays to enter the trade. This debit is also the maximum possible loss.

The maximum profit is calculated as the difference between the short and long calls less the premium that you paid for the spread.

Using the October 21 expiry, traders could buy the 280 strike call, sell two of the 295 strike calls and buy one of the 310 strike calls. The cost for the trade would be $350 which is the most the trade could lose. The maximum potential gain is $1,150 which would occur if GS finished right at 385 at expiration. 

Conclusion And Risk Management

There you have three different trade ideas for Goldman Sachs’s earnings. All three are risk defined trades, so you always know the worst-case scenario even if GS makes a bigger than expected move.

Short-term trades over earnings such as these ones are almost impossible to adjust. Either the trade works, or it doesn’t so position sizing is vital. Short strangles involve naked options and should be avoided by beginner traders.

Short-term trades also have assignment risk, so traders need to be aware of that possibility.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

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