Before Year's End, Goldman Sachs Has a Trading Strategy to Score Some Big Wins

Goldman Sachs is highlighting a specific trading strategy that could generate notable returns in the closing weeks of 2024. The Wall Street firm suggests capitalizing on market volatility tied to corporate analyst days by strategically trading call options.

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The approach involves purchasing call options—contracts that grant the right to buy a stock at a predetermined strike price before a set expiration date—five days prior to a company’s analyst day and selling those options back into the market one day afterward. Over the past two decades, this method has delivered an average return of 18% on premium, according to Goldman Sachs.

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“We view analyst day announcements as highly informative, as company management often uses these events to review recent performance, outline strategic goals, provide or update forward guidance, and unveil long-term objectives,” explained John Marshall, Goldman Sachs’ head of derivatives research, in a recent report. “Despite the critical nature of these events, options markets frequently underprice volatility surrounding analyst days.”

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Goldman has identified 16 upcoming opportunities linked to December analyst days. The companies on its radar include Robinhood, GE Vernova, and Match Group, among others.

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Robinhood is hosting its first-ever investor day on December 4, an event that Goldman expects to shed light on the company’s outlook for the cryptocurrency market. This comes amid President-elect Donald Trump’s favorable stance on digital currencies, a factor that could influence Robinhood’s role within an expanding cryptocurrency ecosystem as government regulations ease.

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Marshall noted that Robinhood stock currently exhibits a two-week implied volatility of 69, placing it in the 78th percentile over the past year. Anticipating increased market activity leading up to the event, Goldman recommends buying Robinhood’s December 6 call options with a $36.50 strike price.

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The stock has experienced a remarkable 195% rally in 2024, making it a strong candidate for this short-term trading strategy.

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Another key opportunity lies with GE Vernova, which is scheduled to hold its analyst day on December 10. The company, a leader in power equipment and electrification, is expected to unveil new segment-level targets for 2028 and elaborate on its strategy for capitalizing on the energy transition.

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Analyst Joe Ritchie remains optimistic about GE Vernova’s potential to leverage its core strengths in power and electrification to mitigate challenges from its offshore wind business expansion. Goldman advises purchasing December 13 call options on GE Vernova with a $340 strike price. The stock’s implied one-month volatility stands at 49, slightly below its realized one-month volatility of 56.

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Goldman is also monitoring Match Group, which will hold its first investor day on December 11. The online dating platform is expected to address challenges in user acquisition and future growth, areas that weighed heavily on its most recent earnings report. Analyst Eric Sheridan anticipates that the company will use the event to outline strategies for overcoming these headwinds and achieving long-term growth.

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Match stock has fallen by more than 10% in 2024, presenting a potential opportunity for a rebound. Goldman recommends purchasing December 13 call options on Match with a $33 strike price. The stock’s one-month implied volatility is 38, placing it in the 78th percentile for the year, signaling the likelihood of heightened activity around the analyst day.

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Goldman’s emphasis on this strategy stems from the inherent significance of analyst days in shaping market sentiment. These events often lead to material disclosures and updates that can significantly impact stock prices. Despite this, the options market tends to undervalue the potential volatility, creating opportunities for traders to capitalize on the price movements.

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Marshall’s analysis underscores that, for stocks with elevated implied volatility and a clear catalyst like an analyst day, buying call options offers an attractive risk-reward profile. Investors can benefit from the price swings without committing to holding the underlying stock.

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A Cautionary Note

While Goldman’s recommended trades have shown strong historical returns, the strategy is not without risk. Implied volatility can sometimes fail to translate into actual price movement, and sudden market shifts could lead to unexpected losses. Investors are encouraged to carefully assess risk and monitor market conditions before executing these trades.

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In summary, Goldman Sachs’ approach of targeting analyst day-driven volatility provides a focused strategy for traders seeking to profit in the final weeks of 2024. With potential opportunities in companies like Robinhood, GE Vernova, and Match Group, the strategy leverages anticipated market movements to maximize short-term returns. By timing trades around these pivotal events, investors may find themselves well-positioned to capitalize on significant stock price fluctuations.

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