Goldman Sachs pinpoints 17 stocks poised for big moves during the upcoming holiday shopping season — and breaks down the exact options strategies for 3 of them

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happy stock trader “Over the past 10 years, these stocks have moved +/-11% in the two months between Thanksgiving and January expiration,” said Goldman Sachs’ Vishal Vivek.

  • Next week’s Thanksgiving holiday will usher in a historically volatile season during which stocks with exposure to consumer shopping trends are expected to experience large moves, Goldman Sachs analysts say. 
  • To capitalize on the holiday shopping period, the analysts led by Vishal Vivek have identified 17 stocks with attractive January 2021 options. 
  • The team recommends buying call options on eight stocks, puts on six stocks, and straddles on three stocks.
  • Visit Business Insider’s homepage for more stories.

It is almost that time of the year when Thanksgiving ushers in a holiday season filled with shopping and, apparently, heightened volatility in stocks with exposure to consumer shopping trends, according to a team of Goldman Sachs analysts led by Vishal Vivek.

This year, with the COVID-19 pandemic keeping the country in lockdown, the dramatic shift from in-store retail to online shopping is likely to drive even more volatility for retail and consumer discretionary stocks that are sensitive to the dynamic. 

Heading into the historically volatile holiday shopping season, Vivek and his team have identified 17 stocks where January 2021 options are attractive. 

But not all of them are going to be clear-cut winners. Vivek recommends buying call options on eight names where stock-specific fundamentals are likely to send shares higher and buying put options on six stocks where his team sees near-term risk. 

The key to their assessment of these stocks is the shipping cost for e-commerce retailers. For example, two stocks included in the team’s call option buy list are UPS and FedEx. 

“Both companies have announced peak surcharges for the upcoming period, effective at above 25,000 and 35,000 packages per week, respectively. These surcharges are higher than prior levels; UPS last enacted peak season surcharges in 2018, at the rate of $0.28/package,” Vivek wrote in a research note last week. 

He continued: “This compares to $1-$4/package this year, depending on the type of shipping. Higher surcharges, coupled with the accelerated shift to digital channels, is likely to drive earnings upside in UPS and FDX.”

Additionally, his team also recommends buying straddles on three stocks.

A straddle refers to the neutral act of simultaneously buying an at-the-money put option and an at-the-money call option for the same underlying stock with the same strike price and the same expiration date. When buying a straddle, the trader expects the underlying stock to be very volatile without knowing the specific direction in which the stock is going to trade. 

“Over the past 10 years, these stocks have moved +/-11% in the two months between Thanksgiving and January expiration,” Vivek said of the 17 stocks in the note. 

The 17 stocks, along with their tickers, option-buying strategies, and strike prices for 15 Jan. 2021-listed options are shown below. Also included in the recommendations are three specific call-options strategies for FedEx, Tapestry, and Target.

Investors should also bear in mind that buying call options risks loss of the entire premium paid if the underlying stock finishes below the strike price at expiration. On the other hand, investors who buy put options risk losing the entire premium paid if the underlying stock finishes above the strike price at expiration.

1. United Parcel Service $UPS

Ticker: UPS 

Options strategy: Buy calls 

Strike price: $165.00

Source: Goldman Sachs

2. Target $TGT

Ticker: TGT

Options strategy: Buy calls 

Strike price: $160.00

Specific strategy: “TGT three month implied volatility has declined 5 points in November, and is below three month realized volatility. For context, buying the Jan-21 option also captures next week’s earnings,” said Vivek in the note. 

“TGT options are implying +/-6.8% move ahead of earnings on 18-Nov. This compares to an 8Q average earnings-day move of +/-9.6%, implying options are inexpensive. Call buyers risk losing premium paid if stock closes below strike price on expiration,” he added. 

Source: Goldman Sachs

3. Dollar Tree $DLTR

Ticker: DLTR

Options strategy: Buy calls 

Strike price: $95.00

Source: Goldman Sachs

4. Amazon $AMZN

Ticker: AMZN

Options strategy: Buy calls 

Strike price: $3,135.00

Source: Goldman Sachs

5. FedEx $FDX

Ticker: FDX

Options strategy: Buy calls 

Strike price: $270.00

Specific strategy: “FDX three month implied volatility has declined to 40, and is now at median levels relative to the past year. Normalized put-call skew has risen off October lows, implying investors expectations of a bullish near-term move have declined,” Vivek said. 

He continued: “Jan-21 options also capture the 17-Dec earning. For context, over the past 8 quarters, FDX has moved +/-7% on earnings-day alone. Call buyers risk losing premium paid if stock closes below strike price on expiration.”

Source: Goldman Sachs

6. BJ’s Wholesale Club $BJ

Ticker: BJ

Options strategy: Buy calls 

Strike price: $40.00

Source: Goldman Sachs

7. Ollie’s Bargain Outlet $OLLI

Ticker: OLLI

Options strategy: Buy calls 

Strike price: $85.00

Source: Goldman Sachs

8. Tapestry $TPR

Ticker: TPR

Options strategy: Buy calls 

Strike price: $25.00

Specific strategy: “Historically, TPR has moved +/-8% over this holiday period, including a directional move of +5%. Three month implied volatility for the stock has declined significantly over the past few months, and is now in-line with February levels,” Vivek said in the note.

“Despite the potential for shares to move higher in the near term, three month normalized put-call skew has increased to median levels relative to the past year. Call buyers risk losing premium paid if stock closes below strike price on expiration,” he added. 

Source: Goldman Sachs

9. Walmart $WMT

Ticker: WMT

Options strategy: Buy straddles 

Strike price: $150.00

Source: Goldman Sachs

10. Ulta Beauty $ULTA

Ticker: ULTA

Options strategy: Buy straddles 

Strike price: $255.00

Source: Goldman Sachs

11. Foot Locker $FL

Ticker: FL

Options strategy: Buy straddles 

Strike price: $37.50

Source: Goldman Sachs

12. Nordstrom $JWN

Ticker: JWN

Options strategy: Buy puts 

Strike price: $15.00

Source: Goldman Sachs

13. Macy’s $M

Ticker: M

Options strategy: Buy puts 

Strike price: $7.00

Source: Goldman Sachs

14. Gap $GPS

Ticker: GPS

Options strategy: Buy puts 

Strike price: $23.00

Source: Goldman Sachs

15. Michaels companies $MIK

Ticker: MIK

Options strategy: Buy puts 

Strike price: $7.50

Source: Goldman Sachs

16. Bed Bath & Beyond $BBBY

Ticker: BBBY

Options strategy: Buy puts 

Strike price: $20.00

Source: Goldman Sachs

17. The Container Store Group $TCS

Ticker: TCS

Options strategy: Buy puts 

Strike price: $10.00

Source: Goldman Sachs

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