Goldman says these stocks are vulnerable to higher rates, and the market hasn't realized it

Published Wed, Sep 29 20211:55 PM EDTUpdated Wed, Sep 29 20213:48 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

The rapid rise in the 10-year Treasury yield over the past week has caused turmoil in the stock market, but options traders may be overlooking some key names, according to Goldman Sachs. Vishal Vivek of Goldman's derivatives research team said Wednesday in a note that the volatility in interest rates does not appear to be priced into the options markets for some rate-sensitive stocks. Those stocks may offer an attractive way for investors to hedge against continued rate volatility or even to find some potential winning trades. "The goal is to identify attractive optionality for hedging; however, investors bullish on a factor will also find calls attractive for upside exposure," the note said. The stocks Goldman focused have relatively high betas and correlations to the iShares 7-10 Year Treasury Bond ETF , which falls when yields rise. Traders can hedge against further gains for Treasury yields by purchasing put options on these stocks, which can be a winning strategy when the underlying stock price falls. Sometimes, traders can also take advantage of underestimated volatility by buying a straddle on stock, which involves purchasing a put option and a call option for the same expiration date and strike price, benefiting when the price falls or rises more than the premium paid for the options. One of the most sensitive stocks on the list is data center company Equinix . Shares fell more than 7% over the previous four sessions before stabilizing Wednesday as the spike in yields eased. Equinix is one of several real estate investment trusts on the list. REITs are a favorite of income investors, but their payouts become less attractive as interest rates rise. Consumer staples company PepsiCo also made the list. Food product CEOs have been warning about the impact of inflation from higher food and shipping costs, and inflation fears appear to be one of the factors putting upward pressure on yields. Retail companies Costco and Dollar General , which can be similarly impacted by inflation, also made Goldman's list. —CNBC's Michael Bloom contributed to this report.

Bottles of PepsiCo Inc. brand Pepsi soda for sale at a grocery store in Bagdad, Kentucky, U.S., on Friday, April 9, 2021.

Luke Sharrett | Bloomberg | Getty Images

The rapid rise in the 10-year Treasury yield over the past week has caused turmoil in the stock market, but options traders may be overlooking some key names, according to Goldman Sachs.