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MT Insider: Options Strategy - Goldman's Most Differentiated Ideas Into Q3

By: MT Newswires
Posted: 10/8/2013 11:04:00 AM
Referenced Stocks: BX;KORS;ROST;SPX;THC

In a report out Tuesday, Goldman Sachs identifies its most differentiated call option ideas ahead of the Q3 earnings season given the recent pullback in the markets due to the government shut down and uncertainty regarding the debt ceiling.

The analyst says while the CBOE Volatility Index (VIX) has risen in the past two weeks, macroeconomic concerns are likely overblown. Moreover, the VIX above 19 is still below its long-term average and below its June peak.

According to the report, the options markets remain subdued at the single-stock level. However, the October earnings season tends to be more volatile than other quarters. The analyst further says the options market has implied a move of plus or minus 7.1% on earnings day in Q3 over the last eight years.

Historically, buying calls ahead of an earnings event is the most consistently profitable earnings season strategy and has led to a +10% average profit per trade for S&P ( SPX ) stocks over the past 10 years. Year to date, this strategy has returned +18% on average.

Goldman Sachs believes stocks with upside to EPS estimates include Michael Kors Holdings Ltd. ( KORS ), Blackstone Group LP ( BX ), Tenet Healthcare Corp. ( THC ), Ross Stores Inc. ( ROST ), Team Health Holdings LLC (TMH), Ryland Group Inc. (RYL), Eagle Materials Inc. (EXP), Starbucks Corp. (SBUX), Coca-Cola Enterprises Inc. (CCE), Universal Display Corp. (OLED), Enbridge Inc. (ENB), Palo Alto Networks Inc. (PANW), J.P. Morgan Chase & co. (JPM) and QUALCOMM Inc. (QCOM).

Stocks with downside to EPS estimates include Sysco Corp. (SYY), Eldorado Gold Corp. (EGO), Discovery Communications Inc. (DISCA), DreamWorks Animation SKG (DWA), Intel Corp. (INTC), NII Holdings Inc. (NIHD), and Sprint Corp. (S).

VIX 19.10 -0.31 -1.60

KORS 73.88 -0.45 -0.61

BX 26.39 +0.08 +0.30

THC 47.04 +0.94 +2.04

ROST 72.17 -0.24 -0.33

TMH 39.98 -0.14 -0.35

RYL 39.23 -0.18 -0.46

EXP 72.51 -0.28 -0.38

SBUX 77.27 +0.41 +0.54

CCE 39.96 +0.17 +0.43

OLED 31.75 -1.17 -3.55

ENB 41.10 +0.14 +0.34

PANW 47.65 -0.18 -0.38

JPM 51.53 -0.30 -0.58

QCOM 66.78 -0.41 -0.61

SYY 31.58 -0.05 -0.16

EGO 6.37 -0.11 -1.70

DISCA 79.89 +0.12 +0.15

DWA 28.55 +0.16 +0.56

INTC 22.59 -0.24 -1.05

NIHD 6.23 -0.15 -2.35

S 6.34 -0.04 -0.63