• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Investing With Options

Become a Better Options Trader

Look at a Long Vol Trade in Goldman Sachs

March 19, 2013 By Steven Place

After taking the lead in the first 2 months of the year, GS has been underperforming its sector and the overall market:

gs-vs-spy

And volatility has been compressing, even with the pullback seen back at the end of February.

gs-daily

The technical patterns suggest that a volatile move is coming very soon for Goldman, although the direction is uncertain.

The volatility markets seem unaffected by this-- the VXGS (VIX for GS options) is near it's lows, even though the index was in the 30s on that light pullback in February.

vxgs

A strategy to consider here would be a long May strangle:

  • Buy the May 155 Call
  • Buy the May 150 Put
  • Debit: 8.50 or lower

gs-risk

A move to recent highs around 160 would yield a return of 18% on max risk, and a retest of recent range lows would see a return of around 8%.

It seems as though the downside reward doesn't seem as great-- but if the option implied volatility rises on a pullback, then the position will make more money.

The IV on this straddle is around 22%. If the IV rises to 27, then the position stands to gain 23% in value, without any needed price movement.

A major risk here is that time decay kicks in and the position loses money over time-- this risk is reduced given the technical pattern, but also because the option duration is further out in time and that earnings is coming up in a month, which will help keep IV bid.

This is a slightly more complex example of what we do at IWO Premium. If you want to become a member, learn more here.

Free Iron Condor Toolkit

Want to learn how to beat the market without needing to time the market?

Do you desire a way to earn aggressive returns without staring at screens for six hours a day?

Get this free iron condor toolkit that will show you how this trade works in the real world.

Download the Toolkit Here

Primary Sidebar

Resources


Option Trading Basics
Income Trading

Recent Posts

  • How I Profited From A One-Day Pullback In Tech Stocks
  • 3 Option Trades for CCIV
  • Time to Call a Top in Solar
  • Winning In Both Directions
  • Big Water, Small Hose

Get The Options Trading Training You Need.

See All IWO Trading Courses!

© 2017 InvestingWithOptions | Disclaimer | Financial Disclaimer | Terms and Conditions | Privacy Policy