RTRS-Investors snap up Goldman calls
before earnings
16:15 16Jun2008
By
CHICAGO, June 16 (Reuters) - Many option traders wanted to
put their hands around the call options in Goldman Sachs Group Inc <GS.N>
on Monday, reflecting optimism about the prospects for favorable earnings from
the investment bank.
Goldman will report second-quarter results on Tuesday before
the bell. Wall Street analyst expect earnings ranging
from $3.03 to 3.99 per share. The consensus estimate is $3.42, according to
Reuters estimates.
On the New York Stock Exchange, shares in Goldman closed up
2.13 percent, or $3.80, at $182.09.
In the options market, many investors bought calls, hoping
to catch a share rally or cover short positions. Some also bought puts,
possibly to shield their portfolios.
Some of the optimism may be due to the fact that Goldman has
easily topped analyst estimates over the past few quarters, said independent
options trader Frederic Ruffy.
According to Reuters Estimates, Goldman has beaten analyst
targets by an average of 73 cents per share over the past four quarters.
Recently, pressures on the brokerage industry have risen
because of the economy, slowing investment banking activity and perhaps most
importantly, more evidence of faulty risk management.
"Throughout it all, Goldman Sachs has been the diamond
in the rough," said William Lefkowitz, options
strategist at brokerage firm vFinance Investments in
"Investors are anticipating that Goldman's guidance and
quarterly profits will not disappoint them," he said.
Scott Fullman, director of
derivative investment strategies at broker-dealer WJB Capital Group, shared the
view.
"You are seeing speculation that Goldman is going to
report better-than-expected results based upon the number of calls being
traded," he said. "We are also seeing put buying as a possible hedge
for long stock positions."
Total option volume was running three times the usual level,
with about 127,000 Goldman calls and 84,000 puts traded, according to option
analytics firm Trade Alert.
Most of the action was centered in the front-month calls
which go off the board this Friday.
Among the most popular contracts were the June $175, $180
and $185 call strikes, allowing investors to buy Goldman shares from $175 to
$185 a piece.
The volume in the call strikes far exceeded their respective
open interest, indicating traders opened new positions at these soon-to-expire
strikes, analysts said.
"The majority of these front-month calls were bought,
suggesting investors believe the investment bank will have a very good quarter
instead of a very bad one," said Jon Najarian, a
founder of Web information site optionmonster.com."
"This is a very expensive stock to speculate in, and it
looks like Goldman could make another attempt at $200 this year." Najarian said.
The options are also pricing in a sizable move in Goldman
shares on the back of its quarterly results.
Goldman options are implying a plus or minus 5 percent move,
or a swing of $9, in the aftermath of its earnings, said Christopher Hauck,
director of the equity strategy group at Deutsche Bank.
Some models predict a bigger move. Using his data, Credit
Suisse equity derivatives strategist Sveinn Palsson found the option market is forecasting a move up or
down of 6 percent, or $11 per share.
(Reporting by
((doris.frankel@thomsonreuters.com;
+1 312 408 8750; Reuters Messaging: doris.frankel.reuters.com@reuters.net))
Keywords: GOLDMAN CALLS/EARNINGS
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