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Goldman Sachs: Now is Best Time in Two Decades to Buy S&P 500 Calls

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It’s the best time to buy bullish options on the Standard & Poor’s 500 Index in 20 years, Goldman Sachs Group Inc. says.

The U.S. benchmark has a 21 percent probability of rising 5 percent in the next month, according to a model by the New York bank that looks at free-cash-flow yield, return on equity, Institute for Supply Management data and capacity utilization. The options market is pricing in only a 5 percent chance the S&P 500 will move as much.

“Call buying in this environment offers strong risk-reward and allows investors to gain upside exposure while limiting risk,” derivatives strategists including John Marshall and Katherine Fogertey wrote in a note dated March 6.

U.S. stocks just completed a third week of gains, their longest stretch this year, since an almost two-year low last month.

Yet options investors remain less optimistic than what Goldman Sachs’s model suggests is warranted given the fundamentals, according to the note.
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