Shares of investment bank Goldman Sachs (GS) have fared well in the past year thanks to a strong stock market, a rise in investment and IPO activity, and low interest rates. One trader sees the potential for a pullback, however.
That’s based on the July $375 puts. Expiring in just over one month, over 5,840 contracts traded against an open interest of 134, for a 44-fold rise in volume. The buyer of the puts paid about $7.63 to make the trade.
With shares of Goldman around $388, they would need to decline about $13, or about 3.3 percent, for the option to move in-the-money.
Following an 80 percent rally in shares in the past year, the investment bank’s shares now stand nearly 50 percent higher than their pre-pandemic peak. With revenue up 127 percent and earnings up nearly 463 percent, however, the move looks somewhat reasonable compared to those numbers.
Action to take: Shares look reasonable here relative to the company’s recent growth. But such an options trade might be a decent way to hedge against some market uncertainty in the next month. Financial stocks tend to drop quickly during periods of market fear.
Traders should certainly consider the options, at least as a hedge trade against the rest of the market seeing some turbulence in the coming weeks. Look to close out the trade if it looks like shares are going to continue higher.
Disclosure: The author of this article has no position in the stock mentioned here, but may make a trade this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.