It looks like investors today are buying to open new call positions on Goldman Sachs Group, Inc. (GS: sentiment, chart, options). In early trading, 2 GS calls were among the most heavily traded options on the Pacific exchange.
Specifically, the stock's January 2009 95 call (GS AS) saw volume of 8,079 cross the tape on this exchange, compared to open interest of 19,214. Meanwhile, the equity's January 75 call (GS AO) saw 8,019 contracts change hands on open interest of 13,280.
While this symmetrical volume would seem to indicate some kind of spread strategy being initiated, further research suggests this isn't the case. Three significant transactions occurred on these 2 strikes at 10 a.m., with the first being a block of 7,800 contracts on the 95 call. This block crossed the tape at the ask price of $1, which indicates that the contracts were purchased.
Likewise, 2 identical blocks of 3,900 contracts apiece changed hands at the ask price of $12.45, again suggesting that these calls were purchased. With all 3 major transactions on these 2 options occurring at the ask price, it seems unlikely that a traditional credit or debit spread is being initiated -- these strategies generally involve the purchase and sale of options at different strikes.
So, is there reason to buy calls on GS? Well, the stock is currently enjoying a minor rally. Since dropping to a low of $47.41 in late November, the equity has rallied an eye-popping 83%. Goldman's 10-day and 20-day moving averages have provided support for this recent rebound.
However, a potential roadblock lies almost directly overhead. The stock's 80-day moving average is dropping through the 94 region, and could put the brakes on Goldman's rebound. This trendline previously rejected a rally attempt in early September.
In other words, purchasing new short-term calls at the 95 strike looks like a risky bet. With resistance hovering just south of this region, GS needs a major boost of buying power to propel it significantly higher. Unfortunately, an exodus of the shorts won't provide much help -- it would take less than 1 trading day, at the stock's average daily volume, for all the existing shorted shares to be repurchased.
Plus, as indicated by today's option volume, option players are also bullishly aligned. The equity's Schaeffer's put/call open interest ratio (SOIR) arrived today at 0.74, just 1 percentage point from an annual optimistic peak. As GS attempts to extend its fledgling rally, it may find itself strapped for new buying pressure.
Did you know you can check out my latest SR.com headlines just by visiting your inbox? To sign up for our email alert service, simply click here and sign in with your Schaeffer's username and password. On the alerts page, select "author" from the first drop-down box, choose your e-mail alert frequency, and type "Elizabeth Harrow" into the third box.
Discuss this article:
Post your own comment
More articles:
Due to the diversity available to options traders, investors have many paths toward achieving a profit. For a bearish trader, the simplest path is to buy (to open) a put contract. By doing so, the trader is placing a bet that the underlying stock will trade significantly below the option's strike price by that contract's expiration date. This strategy is pretty straightforward, but it fails to take into account the potential complexities involved in positioning your portfolio to profit from stocks that are not in a clearly defined downtrend. What's more, due to the size of the drop needed in the underlying security, an outright put purchase often rules out stocks that have additional downside potential, but which could stall near technical support levels. read more...
McDonald's Corp (MCD: sentiment, chart, options) is in the news this morning as the company announced a 2.6% increase in January sales at restaurants open at least 13 months. Same-store sales in the closely watched U.S. region fell 0.7%, while those in Europe and in the Asia/Pacific, Middle East and Africa region both rose 4.3%. read more...
Bristol-Myers Squibb (BMY) read more...
Option traders are betting on a continued slump for casino concern Bally Technologies Inc. (BYI: sentiment, chart, options) , despite an upbeat analyst endorsement over the weekend. read more...
Aetna Inc. (AET) read more...
Research In Motion Limited (RIMM: sentiment, chart, options) has attracted an unusual amount of attention from option traders today – especially on the put side of the tape. In early afternoon activity, the BlackBerry maker has seen roughly 17,000 puts change hands, already surpassing the stock's expected single-session volume of about 15,000 puts. read more...
Earnings season is upon us, and investors all across Wall Street are hoping to take advantage of these potentially volatile few weeks. Large bull (and bear) gaps, upgrades and downgrades, and short squeezes all become increasingly more likely during this period, as companies meet, beat, or miss quarterly expectations. As such, it is imperative that traders be well equipped to deal with all of the eventualities. read more...
NRG Energy (NRG) read more...
Bullish call spreads are known by a variety of different names among options traders. But whether the position is a bull call spread, bullish debit spread, or a long vertical call spread, it is still constructed by purchasing an at-the-money or in-the-money call while simultaneously selling an out-of-the-money call. The reasoning behind pairing up these seemingly contradictory options is really quite simple: limited risk. read more...
McDonald's Corp. (MCD) read more...
Today's Most Popular Stories
working... 
