Goldman has some option plays to trade the start of earnings season

Published Sun, Jul 4 20216:35 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

Corporate earnings season is set to pick up steam later this month, and investors can prepare by buying options for several major stocks, according to Goldman Sachs. The firm's derivatives research team published its weekly options plays, with a focus on established companies that report earnings in mid-July. The options suggested are call options, which give the trader the chance to buy a stock at a set price before the expiration date. With call options, traders can make money when the stock price exceeds the option's strike price. The risk to the trader is capped at the cost of the premium paid to purchase the option. Call options with strike prices that are close to or even below the current price tend to carry higher premiums. The first pick from Goldman's team is Morgan Stanley . The bank stock has been roughly flat over the past month and has a quiet outlook among options traders, creating upside in case of a positive surprise, Goldman said. "MS one month implied volatility of 27 is in its 36th percentile relative to the past two years and only 2 points above one month realized volatility. The stock has underperformed the broad S & P 500 by 7% over the past month (-1% vs XLF), driving up the potential for a reversion in performance following earnings," the note said. Goldman recommended buying the $91 calls for Morgan Stanley that expire July 21. The stock was already trading slightly above that strike price on Friday. The bank is scheduled to report its second quarter earnings on July 15. Another interesting options play with upcoming earnings is PepsiCo . The snack and beverage company could report better-than-expected results on July 13 and forecast stronger growth in the months ahead, according to Goldman. "At the earnings call, [Goldman analyst Bonnie Herzog] sees potential for more bullish commentary for the rest of the year, while longer term, she sees PEP well positioned for growth, given its strong brand portfolio (esp. Frito Lay) and long-term opportunities in Beverages," the note said. Shares of PepsiCo have barely budged in 2021, and were trading just under $150 per share on Friday. Goldman recommended buying the $147 per share calls that expire on July 21. -CNBC's Michael Bloom contributed to this report.

Pepsi soft drinks are displayed at a convenience store in San Francisco, California.

Justin Sullivan | Getty Images

Corporate earnings season is set to pick up steam later this month, and investors can prepare by buying options for several major stocks, according to Goldman Sachs.