At the start of earnings season, Goldman Sachs identified 25 of the most differentiated ideas in order to take advantage of option volatility.
“The average earnings-day move last quarter was 3.2 times as large as an average daily move. This ratio is at the upper end of the past 17 years, well above the average of 2.2 times.” Amidst heightened volatility surrounding this earnings season, the analyst sees even more potential for investors to add alpha on portfolio positions.
Putting this into perspective, Goldman delves into recent under-performers for stocks that may have significant upside moves; and recommends purchasing call options on Amazon (NASDAQ:AMZN), Aruba Networks (NASDAQ:ARUN) and Palo Alto Networks (NYSE:PANW). Worth noting, the firm is more bearish on Transocean (RIG) and AGCO (AGCO), which may have increased risks of selling off post results.
As previously cited on Sunday, there seems to be a refocus from the investor community back to fundamentals (from a micro level). Echoing this sentiment, Goldman thinks this shift should provide a significant boost to option prices.
“Our earnings event study shows stocks tend to rise on their earnings events on average. Last quarter was rare as companies lowered guidance and stocks fell. We see the probability of a bounce-back as higher than what is priced into low call prices and recommend a broad based call buying strategy.”
Analysts have a consensus price target of $415 on Amazon.com, Inc. (NASDAQ:AMZN) which indicates a 31% upside. The consensus rating of the stock is a BUY with a score of 2.73. There are currently 6 Hold Ratings, 24 Buy ratings, 1 Strong Buy ration and 2 Sell ratings on the stock.
The most recent analyst action consisted of S&P Equity Research Reiterating their Sell rating on the stock on April 4th, 2013.
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