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Goldman Says Apple, Seagate And Visa Options Are Underpricing Earnings Alpha

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Traders could be overlooking several golden earnings-related trading opportunities. Goldman Sachs analyst Katherine Fogertey sees five specific option trading strategies that should work this earnings season.

“The low expectations for earnings moves combined with the fact that stocks have been moving more and more on earnings vs the non-earnings period paints a very favorable picture for owning options around earnings,” she explains.

Related Link: Wall Street Firm Bullish On Airlines, Ups Estimates And Price Targets

Here are the trades Fogertey recommends:

1. A Sothebys (NYSE: BID) straddle with May expiration captures two catalysts: the May Contemporary and Impressionist evening auction and Q1 earnings.

2. Buying Seagate Technology PLC (NASDAQ: STX) puts hedges against the downside risk to earnings that Goldman analysts fear.

3. Buying Visa Inc (NYSE: V) calls is a play on Goldman’s expectations that low end spending and lower gas prices will drive a Q1 earnings beat.

4. Buying Apple Inc. (NASDAQ: AAPL) calls provides exposure to Goldman’s belief that Q1 demand and earnings will be better than expected.

5. Buying TransDigm Group Incorporated (NYSE: TDG) calls is a play on Goldman’s expectation that the company will report strong earnings in the face of a guarded options market and elevated short interest.

Fogertey notes the rationale behind these five trades is that the options market is pricing in very little earnings-related volatility, and Goldman’s estimates are well outside of consensus expectations.

Disclosure: the author holds no position in the stocks mentioned.

Latest Ratings for BID

DateFirmActionFromTo
Jan 2019DowngradesOutperformMarket Perform
Nov 2018UpgradesNeutralBuy
Mar 2018MaintainsOutperformOutperform

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Posted-In: Goldman Sachs Katherine FogerteyAnalyst Color Options Markets Analyst Ratings Trading Ideas

 

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