Goldman has an options strategy that pays off if these three giants move big in either direction on earnings

Published Wed, Apr 19 20231:06 PM EDT

Goldman Sachs is eyeing some Wall Street heavyweights that are ripe for straddle-buying opportunities. In a Wednesday note, the firm issued a list of stocks that could outperform or underperform heading into their quarterly earnings. Some of the bigger names that stood out include Walmart , Nvidia and Facebook-parent Meta Platforms . Goldman thinks all three companies could face strong volatility on earnings day, especially since mutual funds are underweight on the stocks. The firm suggests buying at-the-money straddles. A call option gives the holder the right to buy the underlying stock at a stated price – known as the strike price – while a put option gives the investor the right to sell a stock at a specified price. A straddle strategy entails buying a call and a put with the same strike price. Buying the straddle is most attractive when markets are very volatile, because the bet implies that the security will trade sharply up or down. Goldman also charted each company's implied earnings day move against its eight-quarter average. META YTD mountain META is among the slate of tech stocks that made the Goldman list, and the company has an implied earnings day move of 9.8%. Meta will report quarterly earnings on April 26 after the closing bell. Shares have been on fire this year, with a gain of nearly 80%. The company followed through with a planned slate of layoffs earlier on Wednesday , which is concentrated largely on technical employees. Goldman thinks the Mark Zuckerberg-helmed company could be in line for a big move after reporting quarterly earnings, though, and recommends at-the-money straddle purchases for contracts that expire on April 28 for $20.35 per share. The firm said the implied earnings day move for Meta shares is 9.8%, and the stock has an eight-quarter average move of 14%. WMT YTD mountain Goldman Sachs is also eyeing the retail giant for at-the-money straddle trades. Walmart is also up in 2023, with a gain of just above 6%. The company recently announced plans to part ways with chief merchandising officer Charles Redfield last week . Walmart was cautious in its forward guidance from February for the year ahead over a more challenging sales picture, especially with consumers spending less on discretionary goods. The company will report quarterly results on May 18 before the opening bell, and Goldman recommends a $7 at-the-money straddle with a May 19 expiration. Walmart shares have an implied move of 1.4% on earnings day, compared to the eight-quarter average swing of 4%. NVDA YTD mountain Goldman Sachs is also watching chip maker Nvidia for a $33.50 at-the-money straddle. In semiconductors, shares of Nvidia have posted a staggering 90% gain from the start of the year. The company is also delving deeper into artificial intelligence investments, which drove an upgrade on the stock from HSBC on Tuesday . The company will report earnings on May 24 after the market closes. Goldman suggests a $33.50 at-the-money straddle which expires on May 26. The firm also noted that Nvidia has an implied earnings-day move of 3.8% while the eight-quarter average is 5.7%. -CNBC's Michael Bloom contributed to this report.