×

There’s big volatility ahead for this sector: Goldman Sachs

The market in autumn tends to see an uptick in volatility — and Goldman Sachs forecasts the health-care sector could see a particularly rocky upcoming month.

The investment bank's options research team, in a note published last week, said it is focused particularly on option buying strategies to "capitalize on the seasonal pick up in health care [volatility] during this election year."


Volatility tends to rise in October for the broader market, the note's authors acknowledged.

But other catalysts could lend themselves to further turbulence for health care in particular, citing "key" health-care and biotech conferences, analyst meetings, earnings season and the presidential debates.

"Clearly, the election is a big deal, but recent price moves have indicated a huge public dissatisfaction with pharmaceutical prices," Max Wolff, chief economist at Manhattan Venture Partners, said Friday on "Trading Nation."

In the first 100 days of a presidency — often considered a defining period of time for a new public official — big changes could come to the infrastructure of the health-care sector, which could likely affect the pricing power of health-care companies.

Issues around sudden increases in health-care costs have come to the fore, most recently related to pharmaceutical company Mylan coming under fire for its EpiPen price increases.

"It's a very solid idea," Nicholas Colas, chief market strategist at Convergex, said Friday on "Trading Nation," referring to the bank's call.

Right now, the CBOE Volatility Index is around 12, noted Colas. Around last October, the "fear gauge" was at about 30.

The S&P health-care sector ETF, the XLV, is down about 2 percent this month.

"So volatility could more than double, and still be within the norms of the move from September to October volatility."

The note's authors recommend, among other names, buying October 16 calls of biopharmaceutical company Alkermes.

Goldman Sachs analysts forecast the company's Vivitrol drug, prescribed to treat opioid addiction, will receive a greater-than-expected total addressable market from Alkermes management.

Wolff, of Manhattan Venture Partners, said the volatility index is not telling the whole story at this point.

"Certainly, the volatility suggests a very calm, still situation, when the election and the general public debates suggest the opposite," he said Friday.



Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more

Connect