Goldman Says Apple, Seagate And Visa Options Are Underpricing Earnings Alpha

Traders could be overlooking several golden earnings-related trading opportunities. Goldman Sachs analyst Katherine Fogertey sees five specific option trading strategies that should work this earnings season.
 

“The low expectations for earnings moves combined with the fact that stocks have been moving more and more on earnings vs the non-earnings period paints a very favorable picture for owning options around earnings,” she explains.

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Here are the trades Fogertey recommends:

1. A Sothebys BID straddle with May expiration captures two catalysts: the May Contemporary and Impressionist evening auction and Q1 earnings.

2. Buying Seagate Technology PLC STX puts hedges against the downside risk to earnings that Goldman analysts fear.

3. Buying Visa Inc V calls is a play on Goldman’s expectations that low end spending and lower gas prices will drive a Q1 earnings beat.

4. Buying Apple Inc. AAPL calls provides exposure to Goldman’s belief that Q1 demand and earnings will be better than expected.

5. Buying TransDigm Group Incorporated TDG calls is a play on Goldman’s expectation that the company will report strong earnings in the face of a guarded options market and elevated short interest.

Fogertey notes that the rationale behind these five trades is that the options market is pricing in very little earnings-related volatility, and Goldman’s estimates are well outside of consensus expectations.

Disclosure: the author holds no position in the stocks mentioned.