Options Bears Target Bigger Losses for Goldman Sachs Stock

BofA-Merrill Lynch downgraded GS stock

Nov 30, 2018 at 10:47 AM
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The shares of Goldman Sachs Group Inc (NYSE:GS) are trading down 2.6% at $189.60, after BofA-Merrill Lynch downgraded the blue-chip bank stock to "neutral" from "buy," and cut its price target to $225 from $280. The brokerage firm cited lingering "uncertainty" surrounding the financial firm's role in the 1MDB scandal, and the bear note follows a Bloomberg report that said the Federal Reserve is accelerating its probe into the bank's compliance failures in relation to the Malaysian money-laundering scheme.

Against this backdrop, GS options are flying off the shelves today, with roughly 20,000 puts and 11,000 calls on the tape -- three times what's typically seen at this point. Most active are the December 185 and 187.50 puts, where it seems likely new positions are being purchased. If this is the case, the put buyers expect the shares to extend today's weakness over the next three weeks.

This bearish options activity is nothing new for Goldman Sachs speculators, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.56 ranks in the 88th annual percentile, meaning puts have been bought to open relative to calls at a quicker-than-usual clip.

Those purchasing short-term options are having to contend with relatively rich premiums, per the GS stock's 30-day at-the-money implied volatility (IV) of 27.3%, which ranks in the 85th annual percentile. Plus, the equity's 30-day IV skew of 13.7% registers in the 74th percentile of its 12-month range, meaning puts are currently pricing in higher volatility premiums relative to calls.

Looking at the charts, the stock has sold off sharply since news former Goldman Sachs CEO Lloyd Blankfein was present at a 2009 1MDB meeting surfaced back in mid-November. Specifically, GS has shed nearly 18% since its Nov. 8 close at $231.65, and hit a two-year low of $188.94 one week ago today. Year-to-date, the shares are off 25.4% -- the worst of any Dow stock so far.

gs stock daily chart nov 30


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