Goldman Sachs Option Trade Could Return 23% By Mid-April
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GAVIN McMASTER
Goldman Sachs (GS) is a popular stock with option traders and is sitting right between the 50-day and 200-day moving averages.
Today, we are looking at an unbalanced iron condor, with a slightly bullish bias.
What Is An Iron Condor?
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This can be achieved by trading more put spreads than call spreads.
An iron condor is a combination of a bull put spread and a bear call spread.
First, we take the bull put spreads. Using the April 17 expiry, we could sell two put spreads with the 525-520 strike prices. That spread could be sold for around $0.65 late Wednesday. Selling two contracts would generate $130.
Then the bear call spread could be placed by selling the 670 call and buying the 675 call. This spread could be sold for around $0.60.
Goldman Sachs Stock Trade Offers Bullish Bias
Trading two put spreads for every one call spread gives the trade a slight bullish bias, but also more risk on the downside.
In total, the iron condor will generate around $1.90, or $190 of premium.
The profit zone ranges between 523.10 and 671.90. This is calculated by taking the short strikes and adding or subtracting the premium received.
The maximum risk is $810 on the put side and $410 on the call side.
If we take the premium ($190) divided by the maximum risk ($810), this iron condor trade has the potential to return 23%.
Exit Strategy For Goldman Sachs Stock
A stop loss in this case might be calculated based on 25% of capital at risk, or around $200.
According to the IBD Stock Checkup, Goldman Sachs is ranked No. 11 in its industry group. It has a Composite Rating of 92, an EPS Rating of 86 and a Relative Strength Rating of 90.
Goldman Sachs has earnings around April 14, so this trade would have earnings risk if held to expiration
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
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