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Bullish Investor Enacts Options Combo Play on Goldman Sachs Group, Inc.

Today’s tickers: GS, BP, XLV & EEM

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.

BP – BP PLC – The 3.75% decline in the price of BP’s shares to $37.46 this morning did not deter one optimistic options player from purchasing a bull call spread in the August contract. It looks like the investor purchased 2,500 in-the-money calls at the August $35 strike for an average premium of $4.34 apiece, and sold the same number of calls at the higher August $40 strike for an average premium of $1.74 each. Net premium paid to purchase the spread amounts to $2.60 per contract. The investor responsible for the transaction makes money as long as the oil company’s shares trade above the average breakeven point on the spread at $37.60 by August expiration day. Maximum potential profits of $2.40 per contract are available to the trader if the price of the underlying stock increases 6.8% over the current price of $37.46 to exceed $40.00 at expiration.

XLV – Health Care Select Sector SPDR – One options strategist expecting shares of the XLV, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Health Care Select Sector of the S&P 500 Index, to do anything but stagnate ahead of September expiration purchased a large-volume straddle this morning. Shares of the underlying fund are currently down 1.85% to stand at $28.75 as of 12:15 pm (ET). It looks like the investor purchased roughly 27,000 calls at the September $29 strike for an average premium of $0.92 apiece in combination with the purchase of approximately 27,000 in-the-money puts at the same strike for an average premium of $1.07 each. The net cost of buying the straddle amounts to $1.99 per contract. The long straddle play prepares the investor to make money if the XLV’s shares shift dramatically in either direction away from the strike price of $29.00. Profits start to accumulate if the price of the underlying shares exceeds the upper breakeven point at $30.99, or if shares fall substantially lower to trade beneath the breakeven point on the downside at $27.01 by expiration day in September. Options implied volatility on the Health Care Select Sector SPDR is up 17.00% to arrive at 19.90% by 12:20 pm (ET).

EEM – iShares MSCI Emerging Markets Index Fund – Shares of the EEM, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the MSCI Emerging Markets Index, slipped 2.25% lower during the first half of the trading day to stand at $38.94 by 11:35 am (ET). One bearish investor expecting the ETF’s share price to continue to decline ahead of August expiration purchased a plain-vanilla debit put spread on the fund. The pessimistic player picked up 5,000 puts at the August $38 strike for a premium of $1.20 each, and sold the same number of puts at the lower August $33 strike for premium of $0.30 apiece. The net cost of the transaction amounts to $0.90 per contract. Shares of the EEM must fall another 4.7% from the current price of $38.94 in order for the put-spreader to breakeven on the trade at $37.10. Maximum available profits of $4.10 per contract pad the investor’s wallet if the fund’s shares plunge 15.25% to trade below $33.00 by August expiration. The overall reading of options implied volatility on the emerging markets fund is up 10.3% to 32.60% as of 11:40 am (ET).


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