Here's Goldman's winning options strategy heading into earnings season

Published Tue, Apr 11 202312:04 PM EDTUpdated Tue, Apr 11 20231:28 PM EDT

Goldman Sachs is looking at using stock options as a way to play the forthcoming earnings season. In a note last week, the firm recommended buying at-the-money straddles, which involve purchasing both a put and a call option. This allows a trader to profit when an underlying security moves either away or toward the contract's strike price. "One of our preferred options strategies ahead of earnings is buying straddles that are inexpensive relative to their typical one-day earnings move," Goldman Sachs head of derivatives research John Marshall wrote. Buying the straddle is most profitable in a volatile market, because the implication is that the security in question will move sharply in either direction. Goldman posits that the options market hasn't yet fully priced in the volatility that some of the stocks on its list have shown in the past. "When applied strategically across a portfolio, we find this overlay can provide a hedge or amplify upside exposure should the market make a correlated up or down move," Marshall said. Goldman picked 20 stocks that have typically offered cheaper at-the-money straddles before their earnings-day moves. Here are some of the names that made Goldman's cut. Netflix has rebounded almost 16% from the start of the year, but the stock remains volatile after plunging 51% in 2022. Under new co-CEOs Greg Peters and Theodore Sarandos, the streamer has been aggressively reining in costs and cracking down on password sharing . Netflix has also been trimming its workforce as well as cutting back on content to cut spending. NFLX YTD mountain Shares of Netflix have been higher from the start of the year, although shares remain vulnerable to volatility. The company has been pursuing efforts to cut costs through slimming its content roll and dialing back its workforce as well as cracking down on password sharing. Coffee chain giant Starbucks has also edged higher from the start of 2023, gaining roughly 7% after falling 15% last year. The return of former chief executive Howard Schultz was also accompanied by potholes, leading to a recent appearance before the U.S. Senate and several tense exchanges with Senator Bernie Sanders over the company's alleged union busting . Qualcomm has been on a similar wild ride, although shares have gained about 13% from the start of the year, after slumping 40% in 2022. The broader array of semiconductor stocks surged in the first quarter , although concerns remain over final demand and continued supply chain issues. Other top picks from Goldman include Eli Lilly , UPS and Merck .