Unusual Options Activity In Goldman Sachs $GS

| May 18, 2015 | 0 Comments

Financial InstitutionUnusual Options Activity In Goldman Sachs $GS

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason…  Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week…

Goldman Sachs $GS is one of the largest and most well known investment banks in the world.  The company has a market cap over $87 billion and earns about $9 billion a year in profits.  Follow the link for more info on the company.

$GS is up 5% so far for the year.  The current share price of $202.97 is right at the 52-week high and 33% above the 52-week low.

So what does unusual options activity in $GS tell us?

Goldman, along with other major banks, are starting to see some buying interest from the investment community over the past couple months.  Yet despite the recent buying, GS shares are trading at just a 10x P/E.  In other words, for such a financial bellwether, it’s extremely inexpensive.

Here’s the deal…

A trader sold 5,800 Weekly GS 180 puts, expiring on May 22.  The puts sold for $0.08 a piece.  That means the trader collected about $46,000 on the trade.  Remember, a put option makes money when the underlying (stock) goes down.  So selling a put makes money when the underlying goes up.

The trader can only make the amount of premium collected on the trade, or just $46,000.  Meanwhile, downside risk is unlimited should GS drop below $180.

So why do such a risky trade with so little payout?

Actually, this strategy is quite popular.  The idea is to sell way out-of-the-money options with just a little time left to expiration, but still have some value.  Some traders believe this is a riskless trade, because what are the chances $GS will plunge over $20 in a week?

To some extent, it’s true.  The trade does have a high probability of success.  As such, it’s an easy way to make over $45,000 in a week.  However, it only takes one mistake to wipe out a trading account doing trades like this.  After all, stock market crashes usually happen over a very short period of time.

Here’s the chart of $GS:

unusual option activity, a chart of $GS

$GS has been clearly trending higher.  The stock has moved well above the 50-day moving average.  The share price is also right at the 52-week high.

As you can see, it’s extremely unlike the stock will drop below $180 in one week without a major market catastrophe.  The put seller should easily collect the full premium.  However, market crashes aren’t as rare as we’d like.  And in my opinion, this trade is probably too risky for the reward.

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis

Note:  Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Unusual Options Trading Activity

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.