These are Goldman's top options trades to take advantage of earnings surprises

Published Tue, Jul 12 202212:35 PM EDTUpdated Tue, Jul 12 20221:29 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

Earnings season presents plenty of opportunities to take advantage of negative market sentiment, according to Goldman Sachs. In a note to clients Tuesday, the firm's derivatives research team said the upcoming earnings reports should be volatile for individual stocks, which is good news for options traders. "While stocks have drifted lower in recent months due valuation pressures catalyzed by higher interest rates, we expect earnings beats/misses to be increasingly relevant this quarter as growth slows. Options expect earnings-day moves to average +/- 6.1% this quarter, the third highest in the past 12 years (observed at this time ahead of earnings)," the Goldman note said. Investor concerns about a recession and a potentially deepening bear market could create an opportunity for big moves higher on upside earnings surprises. "High fear priced for earnings sets stocks up for relief rallies on earnings-day," the note said. The simplest way for investors to bet on upside through derivatives is with call options. Calls have a set strike price, and investors can make money if the underlying stock rises above the strike price before expiration. The risk to the investor is capped at the premium paid to purchase the call option contract. Below are some of the stocks where Goldman analysts expect earnings beats for this upcoming reporting season and in upcoming quarters, which could result in strong guidance. Source: Goldman Sachs The company on the list that Goldman expects to see the biggest earnings beat this quarter is toymaker Mattel . Goldman analyst estimates for earnings per share are more than 20% above consensus, according to the note. Shares of Mattel have already outperformed in 2022, gaining more than 5% year to date. Another consumer-focused name on the list is Monster Beverage . A potentially good omen for Monster is the performance of PepsiCo , which reported a beat on the top and bottom lines on Tuesday morning . In that report, PepsiCo said its beverage organic revenue in North America rose 9%, while sales volume dipped 1%, suggesting that demand is holding up relatively well despite inflation eating into consumers' wallets. There are several financial companies on the list, including Interactive Brokers . The stock has fallen more than 30% year to date, as the bear market appears to have dampened enthusiasm among the smaller traders who help brokerage firms. However, Goldman projects Interactive Brokers to beat earnings estimates by 8% in its upcoming report. — CNBC's Michael Bloom contributed to this report.