GS – Goldman Sachs Group, Inc. – One options strategist initiated a three-legged bullish options combination play on Goldman Sachs this morning in order to position for the company’s shares to increase significantly ahead of October expiration. The global investment banking firm’s shares rallied more than 4.6% today, adding to Thursday’s 3.8% bullish move in the price of the underlying stock, to secure an intraday high of $152.00 after the firm agreed to pay $550 million to settle with U.S. regulators. The investor responsible for the three-legged bullish transaction sold short put options in order to partially offset the cost of buying a debit call spread. The trader sold 1,750 puts at the October $130 strike for a premium of $3.50 each, purchased 1,750 calls at the October $160 strike for a premium of $5.50 apiece, and sold 1,750 calls at the higher October $175 strike for a premium of $1.86 a-pop. Net premium paid to establish the spread is reduced to just $0.14 per contract. Thus, the options strategist if prepared to profit should Goldman’s shares rally 5.35% over today’s high of $152.00 to surpass the effective breakeven price at $160.14 by expiration day. The investor walks away with maximum potential profits of $14.86 per contract if shares of the underlying stock surge 15.1% to exceed $175.00 by October expiration.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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