The Goldman Sachs Group, Inc. (GS) is a leading global financial holding company providing IB, securities, investment management and consumer banking services to a diversified client base. It has 4 broad segments.
The IB segment comprises the Financial Advisory, Underwriting and lending to corporate clients.
The Global Markets segment comprises Fixed Income, Currency and Commodities, which include client-execution activities related to making markets in credit products, interest rate products, mortgages, currencies and commodities.
Equities include client execution activities related to making markets in equities, commissions and fees, and its securities services business, warehouse lending & structured financing to institutional clients, advisory and underwriting assignments.
The Consumer & Wealth Management segment includes management and other fees, incentive fees and results from deposit-taking activities related to wealth management business.
The Asset Management division comprises management and other fees.
Goldman Sachs has stayed above the expected range following five of the last six earnings announcements.
GS Earnings Bull Put Spread
With earnings set for April 14th before the market open, implied volatility on GS stock is through the roof.
Implied volatility is sitting at 46.20% compared to a twelve-month low of 17.76% and a high of 66.45%.
That means, it’s a great time to be an option seller.
If you have a bullish outlook for Goldman Sachs for their earnings announcement, then a bull put spread is a great strategy to employ.
To execute a bull put spread, an investor would sell a naked put and then buy a further out-of-the-money put to create a spread.
A bull put spread is considered less risky than a naked put, because the losses are capped thanks to the bought put.
Potential Benefits
Bull put spreads offer several advantages for options traders seeking to generate income while managing risk.
They provide a defined-risk strategy, allowing traders to know their maximum potential loss upfront.
Additionally, bull put spreads benefit from time decay, as they profit from the erosion of extrinsic value over time.
This time decay accelerates as the expiration date approaches.
Bull put spreads will benefit from the drop in implied volatility that always occurs after an earnings announcement.
Potential Risks
While bull put spreads offer enticing benefits, they also come with inherent risks.
One significant risk is the potential for substantial losses if the underlying stock's price declines sharply.
Traders must also consider the possibility of early assignment, which can occur if the stock price moves below the short put option's strike price before expiration.
It's essential for traders to thoroughly understand and manage these risks when implementing this options strategy.
Selling a GS Bull Put Spread
A trader selling the April 17th, $470-strike put and buying the $465-strike put on GS would receive around $80 into their account, and would have a maximum risk of $420.
That represents a 19% return on risk between now and April 17th if GS stock remains above $470.
If GS stock closes below $465 on the expiration date the trade loses the full $420.
The breakeven point for the bull put spread is $464.20 which is calculated as $465 less the $0.80 option premium per contract.
Company Details
The Barchart Technical Opinion rating is a 56% Sell with a weakening short-term outlook on maintaining the current direction.
Of the 23 analysts covering GS, 10 have a Strong Buy rating and 13 have a Hold rating.
Conclusion
Selling a bull put spread on GS ahead of earnings can offer traders an opportunity to capitalize on anticipated bullish sentiment while managing downside risk.
By carefully selecting strike prices and expiration dates, traders can position themselves to potentially profit from a favorable earnings outcome while limiting potential losses.
However, it's crucial for traders to conduct thorough analysis and adhere to risk management principles to navigate the inherent uncertainties associated with earnings events.
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.
