Earnings reports are causing big moves for stocks. Here’s a way to play them with options
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According to Goldman Sachs, although volatility is ending, investors still have opportunities to profit from big earnings-driven moves. Big hits have been recorded for retailers, including Target and Walmart experiencing the largest one-day drop records. Toll Brothers’ shares rose almost 8% Wednesday, after it beat expectations and preserved its guidance. The 30 points premium to implied volatility demonstrates that realized volatility has outperformed expectations due to the sharply increased earnings-day movements. … “Looking ahead, consumer stocks that have yet to report earnings show normalized put skew has increased at its highest since the March 2020 COVID driven sell-off, which indicates call options remain attractive,” Vishal Vivek (Goldman analyst) wrote in a note addressed to clients Tuesday. Vivek said that these factors are favorable for option buyers, particularly investors who want to capture upside volatility and minimize downside risk. Options trading is a way to maximize volatility and minimize risk for investors. Option trading is the simplest way to place bets on stock’s rise through call options and fall through put options. Goldman believes that combining these strategies can create straddles for three stocks in advance of future earnings. Straddles, a type option contract consisting of a call option and a put option with the same strike price and expiration dates, are an example. PVH and Hewlett Packard Enterprise have reports due on June 1 and Casey’s General Store has a report on June 7. Although they are less expensive than single-way bets and offer investors upside potential, straddles can still provide investors with upside opportunities if the stock moves in one direction. Just like puts and calls, investors are only exposed to the risk of losing their option. Here are the strike prices Goldman recommended in a May 25 note: PVH: $60 Hewlett Packard Enterprise: $15 Casey’s General: $200 This year, Hewlett Packard Enterprise and Casey’s have both outperformed the broader market, but PVH has fallen more than twice as much as the S & P 500 .
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