GS Analysis

Update 11/17/2015: The short leg of GS moved into loss-making territory. On time spreads, that generally means that the long leg becomes profitable, and so it was in this case. 

I've become more directionally bearish in my assessment of the GS chart, and I decided to take the profits and run rather than roll the short leg forward.

Shares rose by 3.0% over 21 days, or a +52% annual rate. The options position -- long leg and short leg -- produced a +15.9% yield on debit, for a +276% annual rate.

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The investment bankers Goldman Sachs Group Inc. (GS), headquartered in New York City, gave a bull signal on Monday. With low implied volatility and low historical odds of following through on bull signals, it is a candidate for a time spread.

[GS in Wikipedia]

GS

For the short leg, I shall use the NOV series of options, which trades for the last time 52 days hence, on Dec. 18. For the long leg, I shall use the APR 2016 series, which completes trading 171 days out on April 15.

Odds

GS has completed four bull signals in the pst year. One was successful, yielding 6.6% over 81 days. The three unsuccessful trades on average lost 2.3% over 17 days each.

Volatility

Implied volatility stands at 23%, which is 1.5 times the VIX, a measure of volatility of the S&P 500 index. GS’s volatility stands in the 20th percentile of its annual range.

The Trade
Diagonal, long the $185 calls
sold for a credit and expiring April 16, 2016
Probability of expiring in-of-the-money

APR	Strike	ITM
	185	47.6%

Diagonal, short the $187.50 calls
sold for a credit and expiring Nov. 21
Probability of expiring out-of-the-money

NOV	Strike	OTM
	187.5	56.7%

The premium on the long leg was $10.85, and for the short leg, the premium is $3.05. The stock at the time of entry was priced at $186.25.

Decision for My Account

I've opened a position on GS as described above.

-- Tim Bovee, Portland, Oregon, Oct. 27, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.