Goldman Sachs (GS) reports Q2 earnings tomorrow at 7:20 am.
We've already heard from Wells Fargo, Citi and JP Morgan this morning. The results were mixed with WFC and C stocks lower inline with their bearish expected move, and JPM basically unchanged after an initial gap higher on better than expected results.
GS hasn't reacted much today to those results and is up 1%.
Here's a look at its 1 month expected move chart, with this week's expected move highlighted (4.3%), via Options AI technology:
Ways to Play
Neutral - The first thing to look at is neutral strategies to sell this week's move. Here's a neutral target via Options AI technology:
The expected move is about 201 on the downside and 219 on the upside. This +200p/-202.5p/-220c/+220.50c iron condor establishes a break even close to those points, with any close on Fiday between a max profit. The risk is GS moves outside those breakeven points with a max loss possible below $200 or above $222.50 in the stock.
Bearish - Next let's look at some bearish trades. I want to compare two possible bearish trades, both targeting a move towards 200. First, the +212.50/-202.50 put spread, expiring Friday:
Now compare that to setting an Iron Butterfly with its center at 202.50:
The butterfly shaves about 1.25 off the cost of the trade and raises the breakeven higher. It would perform the same way as the put spread down to 202.50, from a closer breakeven point (iow it would make more money if the stock went to 202.50). But the cheaper price comes with the trade-off of if the stock is below 202.50, the profits begin to tail off and way below (about $195) it actually could lose money.
But I wanted to highlight that trade because it's a way to lower the cost of a bearish (or bullish) trade versus a straight 2 legged spread. The same could be used for a Bullish spread, isolating 220 or 222.50 on the upside.