Investors who have to pick between bulls and bears now have a way to profit from winners and losers. Goldman Sachs has found 30 stock market outperformers and underperformers to invest in with options. This simple options investing strategy finds the best and worst stocks and uses puts and calls. In a year where a small handful of outperformers have carried the market higher, analysts across Wall Street are worried that valuations may be stretched too thin, and a sell-off is in the cards.
In a year where economic data has buoyed investor optimism, analysts across Wall Street are hopeful that the economy can stick the soft landing, and the bull market rally will continue for the foreseeable future.
It’s been a weird year for investors, who have found themselves torn between calls for recession and market exuberance. Most of the time they’re forced to pick a side, choosing between buying into the hype or selling out of fear.
It’s not often that an investing strategy comes along that straddles both sides and gives investors a chance to profit from bulls and bears alike. But analysts at Goldman Sachs, led by John Marshall, head of derivatives research, have found an ingenious solution.
In a note to clients published earlier this week, Marshall outlined the simple strategy. First, find the stocks that have enjoyed the highest performance over the last month relative to their 12-month realized volatility. From there, investors can use overwrites to earn a premium by selling calls on these stocks.
The bearish side of the strategy is just the opposite: find the stocks with the worst performance over the last month relative to their 12-month realized volatility, and sell puts on those stocks to earn a yield.
Marshall and his team did the heavy lifting and found 15 high-performing overwriting candidates with appealing premiums that investors can use three-month, over-the-counter calls with, as well as 15 underperformers that investors can profit from using three-month, over-the-counter puts.
All 30 stocks are below, along with their tickers, 1-month return as of August 11, their Sharpe ratios, three month implied volatility, three month 40 delta call or put premium, and their call or put out-of-the-money percentage.