An options strategy from Goldman to profit from Friday's jobs report

Published Thu, Mar 9 202311:10 AM ESTUpdated Thu, Mar 9 202311:33 AM EST

Jesse Pound @/in/jesse-pound @jesserpound

The options for some major stocks appear oddly cheap ahead of a highly anticipated jobs report, according to Goldman Sachs. The February non-farm payrolls report is scheduled for release on Friday morning, and it will be closely watched by traders after a blowout January report and stubbornly high inflation readings scrambled Wall Street's economic predictions for the year. Goldman's derivatives research team, led by Vishal Vivek, said in a note to clients on Wednesday that economic events like jobs reports, consumer price index reports and Federal Reserve decisions have caused big moves for some stocks in the recent past, but the options market appear to have underpriced this potential volatility. That presents a potential opportunity for investors. "We identify 25 stocks which have, on average, realized a sum total move of +/-10% across these three catalysts over the past year, but at-the-money one month straddles (OTC) capturing the upcoming March catalysts cost only 8% on average," the note said. Straddles are derivatives that serve as a bet on volatility, regardless of direction. They are effectively a call option and a put option with the same strike price. While straddle contracts are more expensive than a directional bet, they can pay off whether a stock rises or falls significantly, and the risk of the trade is still capped at the premium paid to purchase the contract. There are several large tech companies on the list, including Meta Platforms . Shares of the Facebook parent have been on a tear in 2023, rising by more than 50% already. Two other tech names that are outperforming are PayPal and Nvidia . The excitement around artificial intelligence has given a big boost to Nvidia, whose stock is up about 60% this year, due to the high-power semiconductors needed for machine learning. Outside of tech, Caesars Entertainment has already gained 28% year to date, and analysts see another 30% of upside, according to Refinitiv. Another name on the list is Moderna , which is typically a volatile stock. Shares of Moderna have already moved 3% or more on 11 different trading days in 2023.