Goldman Sachs has advised investors to consider buying call options to capitalise on what they foresee as a volatile but ultimately positive earnings season. According to strategists led by John Marshall, earnings day movements in the last quarter significantly exceeded option market expectations, marking levels unseen since 2009. This unusual activity highlights increased fundamental volatility in the market.
Despite this growing volatility, defensive index option selling strategies have gained traction, putting downward pressure on options prices across various indexes, ETFs, and individual stocks. Goldman Sachs’ sector analysts have also raised their price targets by an amount greater than the equity rally observed over the last three months, suggesting confidence in continued market performance.
Based on these factors, Goldman Sachs anticipates above-average volatility coupled with above-average returns from stocks tied to specific events. This scenario makes buying call options particularly appealing, according to their analysis. The firm’s top picks include companies like Broadcom, Citigroup, Cameco, Disney, and Microchip Technology, which analysts believe have the potential for upward earnings revisions. Conversely, they expect downward revisions to negatively impact companies such as MGM Resorts, Enphase Energy, and Super Micro Computer.
Marshall added that recent buying activity from both individual investors and global macro investors is viewed as a positive tailwind for the market in the coming weeks, rather than an indication of market saturation or overcrowding.
