Goldman Sachs just unveiled an simple earnings-season trading strategy that returned 42% over just six days last quarter.
, which notes that price swings and opportunities abound as we get into the meat of quarterly reports. The firm says untapped potential is likely to result from what's been a turbulent path over the past four months.
"The opportunity to add alpha at the stock and sector level is even larger than normal following equity, credit and rates dislocations caused by the 4Q recession scare and 1Q recovery," a group of Goldman derivatives strategists led by John Marshall wrote in a client note.
If you don't believe them, just look at what happened during first-quarter earnings season: Price swings were large, relative to history, and there were big profits to be captured in just a short time. To that end, the firm has formulated a trading strategy that could potentially be a big money-maker this time around.An investor buys the first out-of-the-money call contract on a stock five days ahead of earnings and then sells it one day after the report.last quarter.
. Factoring in the work done by the firm's industry analysts, the suggestions are an ideal hybrid of fundamental and technical analysis. "Options prices are low across the majority of single stocks ahead of this earnings season," Marshall and his team said."For investors with a view that an upcoming catalyst is likely to move a stock in a meaningful way, option buying strategies appear unusually attractive."This is a subscriber-only story. To read the full article,
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