Goldman calls this options trading strategy ‘systematically profitable’

Published Fri, Nov 10 202310:20 AM ESTUpdated Fri, Nov 10 202312:05 PM EST

Jesse Pound @/in/jesse-pound @jesserpound

There are several opportunities over the next month for investors to cash in on a long-standing trend by buying options, according to Goldman Sachs. A Wednesday note from analyst Sesha Phani and the bank's derivatives research team said that call buying ahead of investor days and analyst days has proven to be consistently profitable over time. Call options give their holder the right to buy a stock at a predetermined strike price, and it serves as a way to bet on a stock rising with less risk than buying shares in cash up front. "We find that call buying around analyst days has been a systematically profitable option buying strategy. Over the past 20 years, call buying around analyst days (buying 5b days prior and selling 1b day after the event) resulted in +18% return on premium on average and was also profitable each year through history except 2008, 2022," the note said. The reason the strategy works is that there appears to be an upward bias to share price movement after analyst days that is not priced in to the options market, Goldman said. The events often serve as a venue for companies to unveil new ideas to investors and the analysts who cover them, or to reassure those groups about ongoing issues. "Company managements take the opportunity of analyst days to review recent performance, layout strategic priorities, provide/update forward guidance, reveal long-term targets etc. Despite the significance of analyst days, we also observe that the options market tends to underprice volatility around analyst days," the note said. With call options, investors can participate in large stock rallies while limiting risk if the analyst day goes poorly. If the stock falls, the premium paid to purchase the call option is all that is lost. Goldman Sachs also identified several companies that have analyst days scheduled in the next few weeks. DraftKings , Roblox and Ingersoll Rand all have analyst days later this month. Options trading activity suggests market participants don't anticipate a big upward move for the stocks after the analyst days, according to Goldman's data. Defense contractor L3Harris Technologies , which has an event in December, has relatively cheap call options available, Goldman found. — CNBC's Michael Bloom contributed reporting.

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