Earnings season is over, but there are still smart options trades to be made.
As the second quarter earnings season comes to a close, investors may feel like their opportunities for using options trades to capitalize on share-price fluctuations are limited. However, there is one strategy that has consistently outperformed the S&P 500 for the past 27 years, according to Goldman Sachs. This strategy, known as overwriting, involves buying and holding a basket of stocks while simultaneously writing call options to generate a premium. Goldman Sachs analysts have identified 20 stocks that are well-suited for this strategy, providing investors with an opportunity to continue profiting from options trades before the third-quarter earnings season begins.
A Winning Options Strategy from Goldman Sachs
Goldman Sachs has found that a buy-writing strategy, also known as overwriting, has been highly successful over the past 27 years. By buying and holding a diversified portfolio of stocks and simultaneously selling call options on those stocks, investors are able to generate additional returns through the options premium. This strategy has consistently outperformed the total return of the S&P 500 on a risk-adjusted basis, according to John Marshall, the head of derivatives research at Goldman Sachs. The key to success with this strategy lies in selecting the right stocks and timing the options trades effectively.
20 Promising Stocks for the Strategy
In order to identify the most promising stocks for the overwriting strategy, Goldman Sachs analysts screened for stocks with large market capitalizations, high implied volatility, and upcoming earnings events. The result is a list of 20 stocks that meet these criteria and are well-suited for options trading. Some of the notable stocks on the list include Amazon, Apple, Facebook, Google, Microsoft, and Tesla. These stocks have a track record of strong performance and are expected to continue to perform well in the future. By using the overwriting strategy on these stocks, investors can potentially generate higher returns compared to a traditional stock-only portfolio.
Options Trades Beyond Earnings Season
Although the second quarter earnings season is winding down and there may be fewer near-term catalysts for options trades, there are still opportunities for investors to profit from options trading strategies. In fact, the overwriting strategy can be used outside of earnings season as well. By selecting stocks with high market capitalization, implied volatility, and upcoming earnings events, investors can continue to generate income from the options premium. While trading activity may be lower in August, there are still ways for investors to capitalize on share-price fluctuations and potentially earn higher returns compared to traditional stock investing.
How Goldman Sachs’ Strategy Outperformed the S&P 500
Goldman Sachs’ overwriting strategy has consistently outperformed the S&P 500 on a risk-adjusted basis since 1996. By selling 10% out-of-the-money 1 month covered calls on stocks with liquid options in the S&P 500, investors have generated a compound annual return of 10.7%. This is an impressive outperformance of the S&P 500’s total return by 1.5% annually. The success of this strategy lies in the combination of buy-writing and selecting stocks with certain characteristics, such as high market cap, implied volatility, and upcoming earnings events. By following these guidelines, investors can potentially achieve higher returns compared to a traditional stock-only portfolio.
Profitable Options Trading: The Power of Overwriting
The overwriting strategy has proven to be a powerful approach to options trading. By generating additional returns through the options premium, investors can enhance their overall portfolio performance. This strategy is particularly effective when used on stocks with high implied volatility and upcoming earnings events. By selecting stocks that fit these criteria, investors can take advantage of share-price fluctuations and potentially earn higher returns compared to traditional buy-and-hold investing. Goldman Sachs’ extensive analysis and track record of success with this strategy make it a compelling option for investors looking to maximize their returns in the options market.
While earnings season may be over, there are still plenty of smart options trades to be made. Goldman Sachs has identified a winning strategy, known as overwriting, that has consistently outperformed the S&P 500 for the past 27 years. By selecting stocks with high market capitalization, implied volatility, and upcoming earnings events, investors can continue to profit from options trades before the third-quarter earnings season begins. The success of Goldman Sachs’ strategy lies in the combination of buy-writing and selecting the right stocks at the right time. By following these guidelines, investors can potentially achieve higher returns and enhance their overall portfolio performance.
Analyst comment
Positive news: Goldman Sachs has found a winning strategy, known as overwriting, that consistently outperformed the S&P 500 for the past 27 years. By selecting stocks with high market capitalization, implied volatility, and upcoming earnings events, investors can profit from options trades and potentially achieve higher returns compared to traditional stock-only portfolios. This strategy can be used outside of earnings season as well.
