The option market predicts a huge spike in Goldman Sachs stocks

Investors in The Goldman Sachs Group, Inc. GS need to pay close attention to the stock based on moves in the options market lately. That is because the Jul 21st, 2017 $130 Put had some of the highest implied volatility of all equity options today.

Implied volatility shows how much movement the market is expecting in the future. Options with high levels of implied volatility suggest that investors in the underlying stocks are expecting a big move in one direction or the other. It could also mean there is an event coming up soon that may cause a big rally or a huge sell off. However, implied volatility is only one piece of the puzzle when putting together an options trading strategy.

Clearly, options traders are pricing in a big move for Goldman Sachs shares, but what is the fundamental picture for the company? Currently, Goldman Sachs is a Zacks Rank #4 (Sell) in the Financial - Investment Bank industry that ranks in the Bottom 34% of our Zacks Industry Rank. Over the last 60 days, one analyst has increased its earnings estimates for the current quarter, while five analysts have dropped their estimates. The net effect has taken our Zacks Consensus Estimate for the current quarter from $3.96 per share to $3.42 in that period.

Given the way analysts feel about Goldman Sachs right now, this huge implied volatility could mean there’s a trade developing. Often times, options traders look for options with high levels of implied volatility to sell premium. This is a strategy many seasoned traders use because it captures decay. At expiration, the hope for these traders is that the underlying stock does not move as much as originally expected.

Source: Bloomberg Pro Terminal

Trader Bozhidar Arabadzhiev

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