Beruflich Dokumente
Kultur Dokumente
United States
Options Research
John Marshall
(212) 902-6848 john.marshall@gs.com
Goldman, Sachs & Co.
Katherine Fogertey
(212) 902-6473 katherine.fogertey@gs.com
Goldman, Sachs & Co.
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors
should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors
should consider this report as only a single factor in making their investment decision. For Reg AC certification and other
important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by
non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S. This report is intended for
distribution to GS institutional clients only.
1
The Goldman Sachs Group, Inc.
Trade Description
Initiation date
Stock
Current price
Trade
Stock
Trade
7-Nov-13
22.65
0.59
23.07
DNR
30-Oct-13
19.35
0.80
19.13
0.72
0.65
EXP
11-Sep-13
75.01
2.55
78.06
3.90
GE
30-Oct-13
26.21
0.52
26.42
0.59
GWW
7-Nov-13
268.96
2.65
268.96
2.65
HFC
23-Oct-13
45.48
2.40
46.43
2.55
JWN
7-Nov-13
60.34
2.30
60.34
2.30
MCD
30-Oct-13
96.05
1.67
97.41
2.57
NVDA
7-Nov-13
14.80
0.34
14.80
0.34
RVBD
7-Nov-13
15.33
0.63
15.33
0.63
SAP
7-Nov-13
77.78
1.15
77.78
1.15
UAL
7-Nov-13
35.53
1.67
35.52
1.67
0.45
21-Aug-13
36.16
1.20
35.39
EOG
23-Oct-13
185.15
6.10
179.73
3.20
GRPN
30-Oct-13
9.44
1.05
10.28
1.67
HAL
30-Oct-13
53.25
0.43
53.13
0.33
MJN
30-Oct-13
82.80
0.75
82.07
0.66
MNST
31-Jul-13
60.27
3.70
57.52
0.75
MON
30-Oct-13
106.62
0.93
103.22
0.15
16-Oct-13
6.03
0.25
7.19
0.01
30-Oct-13
9.81
0.13
10.28
0.37
CSCO
23-Oct-13
22.65
0.94
23.07
0.63
12-Sep-13
69.51
4.80
75.01
6.00
KR
23-Oct-13
42.71
0.65
42.91
0.50
TGT
15-Oct-13
63.67
0.86
65.90
1.93
Legend:
Add to these trade recommendations: These are
open trade ideas where we think there remains a good
opportunity for investors to add new money. We
believe the trade is still attractive, the majority of the
catalysts have not yet happened and there is still a
significant portion of the time to expiration.
Continue to hold these trade recommendations:
These are open trade ideas where we think the
risk/reward on the trade is still favorable; we
recommend that investors who hold the position
continue to do so. We would not recommend adding
new money for one of the following reasons: (1) many
of the key catalysts have passed, (2) the trade has
moved significantly toward the place we expected it to
move to, or (3) there is not enough time before
expiration to put on a fresh trade.
Close these trades: With this report, we close our
recommendations on these trade ideas for one of the
following reasons: (1) the major catalysts have passed,
(2) the fundamental thesis has changed, or (3) the
trade has already moved to where we thought it
should.
Source: Goldman Sachs Global Investment Research, Bloomberg. Note: A negative value indicates that investors collect premium to put on the trade.
Exhibit 2: One page of WOW summary of upcoming catalysts for select trade recommendations
Event Move
Options
8Q
Implied Average
8.1
6.7
Ticker
CSCO
Recommended
Options Trade
Buy Nov-13 $23 Call
Upcoming
Catalyst
Insieme Launch
Earnings Release
Catalyst
Date
6-Nov
13-Nov
1M
iVol
29
NVDA
Earnings Release
7-Nov
6.0
3.1
31
28
DNR
Analyst Day
11-Nov
36
31
GWW
Analyst Day
13-Nov
18
20
JWN
Earnings Release
14-Nov
3.5
2.1
22
21
Analyst Day
15-Nov
16
18
GE
EXP
EAP Ruling
Nov-13
31
31
Our analyst is bullish on EXP as the frac sand permitting process is on track,
with the public comment period ending on November 6. The state EPA decision
is expected a few weeks thereafter.
HFC
Q4 2013
2014
30
30
We recommend positioning for upside over the next 3 months. Our analyst
belives 3Q will likely mark a bottom for shares, but sees potential for recovery on
the back of multiple catalysts.
Our analyst sees short-term upside potential for shares on a solid 3Q report and
in-line 4Q guidance. We recommend buying November expiration NVDA calls
as option prices are inexpensive.
Our analyst expects the upcoming analyst day to be particularly significant as
management plans to announce its decision regarding the corporate
restructuring options it has been considering.
5%
4%
3%
2%
1%
0%
-1%
Avg
2013 Q4
2013 Q3
2013 Q2
2013 Q1
2012 Q4
2012 Q3
2012 Q2
2012 Q1
2011 Q4
2011 Q3
2011 Q2
2011 Q1
2010 Q4
2010 Q3
2010 Q2
2010 Q1
2009 Q4
2009 Q3
2009 Q2
2009 Q1
-2%
Our studies, analyzing 38,000+ earnings events since 1996, show call buying ahead of
earnings events to be the more profitable of option buying strategies. With the results of
3Q earnings season to-date we reiterate our conclusions from the study. So far, buying
calls on stocks during their reporting week has returned 34%, on-track to potentially
be the best quarterly performance in nearly four years. Year-to-date call buying ahead
of earnings events has returned 21%, the best year since 2005. Further, the positive
setup into earnings has helped push strangle buying returns to above average levels.
November 5, 2013
United States
Exhibit 4: Call buying for earnings has seen exceptional returns quarter-to-date, while
strangle buying returns are just above long-term average levels
Buy first out of the money options 5 days ahead of earnings and close 1 day after
Average of Call buying returns
50%
Average
45%
40%
35%
30%
25%
20%
15%
10%
5%
Average
10%
2013 Q4
2013 Q3
2013 Q2
2013 Q1
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
15%
5%
0%
-5%
2013 Q4
2013 Q3
2013 Q2
2013 Q1
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
-10%
1996
1996
0%
November 5, 2013
United States
Ticker
MTOR
NTAP
NVDA
LGF
P
NUAN
WDAY
PANW
MCP
MDRX
DLTR
BZH
NRG
ARUN
FWLT
Company
Meritor
NetApp
Nvidia
Lions Gate
Pandora
Nuance Comm
Workday
Palo Alto
Molycorp
Allscripts
Dollar Tree
Beazer Homes
NRG Energy
Aruba
Foster Wheeler
Rating
B
N
N
N
B
N
N
B
N
N
B
N
N
N
N
2wk Perf.
Last
vs
Price ($) S&P 500
(16%)
6.79
(8%)
38.74
(8%)
14.82
(8%)
34.94
(7%)
25.67
(7%)
15.98
(6%)
77.19
(5%)
42.44
(5%)
5.07
(5%)
14.53
(4%)
57.96
(4%)
18.00
(3%)
28.25
(3%)
18.57
(3%)
27.50
Earnings Implied
8Q Avg Implied Date
Move (%) Move (%) 8Q Avg
13-Nov
14.2
8.9
5.3
13-Nov
8.3
6.2
2.1
7-Nov
6.0
3.1
2.8
8-Nov
6.8
4.5
2.3
18-Nov
17.8
14.2
3.6
25-Nov
10.3
7.7
2.5
28-Nov
10.6
1.6
9.0
26-Nov
10.9
4.9
5.9
7-Nov
7.6
13.7
-6.2
7-Nov
9.4
11.4
-1.9
21-Nov
4.1
3.9
0.3
7-Nov
8.7
4.8
3.9
12-Nov
3.5
1.9
1.7
21-Nov
9.8
10.8
-1.0
7-Nov
7.7
6.0
1.7
1-mon
Implied %-ile
Volatility Rank
77
97
35
64
31
50
42
98
76
78
51
98
38
38
51
83
67
20
41
63
23
17
52
72
30
73
49
59
37
83
Position for volatility in stocks where buying options has paid off consistently. Our
historical studies of analyzing strangle buying opportunities for earnings events point to a
number of stocks which show a consistent pattern of higher volatility than is priced into the
options market. In exhibit 5 we highlight five such stocks which have returned greater than
20% profit when buying the first out-of-money strangles 5 days before earnings and closing 1
day after, at a greater than 40% hit rate over the past 18 years. This is higher than the 3%
return and 35% hit rate on the average liquid stock over the course of the entire study.
Exhibit 6: Buy strangles on stocks with consistent patterns of profitability
ANF also holds an analyst day event on 6-Nov, the stock moved +11% on the last analyst day in 2011
Ticker
WFM
SHLD
ANF
DIS
PRU
Company
Whole Foods
Sears Holdings
Abercrombie & Fitch
Walt Disney
Prudential Financial
Last
Rating Price ($)
B
63.49
NC
60.86
N
38.21
N
68.81
B
81.57
Historical Profitability
Return
Hit Rate
41%
61%
29%
41%
26%
41%
24%
47%
23%
41%
Earnings Implied
8Q Avg Implied Date
Move (%) Move (%) 8Q Avg
6-Nov
7.3
6.6
0.7
21-Nov
12.1
9.8
2.3
21-Nov
14.7
13.6
1.1
7-Nov
4.0
2.2
1.8
6-Nov
4.1
4.2
-0.1
1-mon
Implied %-ile
Volatility Rank
32
89
60
93
66
98
21
62
25
60
November 5, 2013
United States
guidance. If sales continue to remain weak, he sees management reigning in SG&A to limit
the damage to the bottom line. By contrast, flat-to-positive comps would represent a
meaningful upside surprise amidst the current apparel environment. Earnings reports from
peers Macys (M, November 13) and Kohls (KSS, November 14) could also move JWN even
before their own earnings report.
NVDA 1-month implied volatility is 5 points below its 2-year average; Buy November
$15 calls for $0.34 (2.3%, stock $14.80). NVDA option prices are inexpensive ahead of
upcoming earnings release. NVDA has underperformed S&P500 by 8% in the past two weeks.
Our 18+ year study analyzing 38,000 earnings events shows that call buying on stocks that
have underperformed the market ahead of their earnings has produced a 20% return on
premium, nearly double the return on premium from buying calls on the average stock. Call
buyers risk losing the premium paid if the stock closes below the strike price on expiration.
November 5, 2013
United States
relative to Nexus and what customers are announced. Our analyst believes if Cisco is able
to significantly leap-frog competitors and the emerging white box ecosystem in terms of
raw performance, then Web 2.0 customers will likely seriously consider Insieme even if it
carries some premium.
Earnings (13-Nov): CSCO shares have moved an average of +/- 7% on the past eight
earnings events. CSCO shares have underperformed S&P500 by 7% over the past month
and we see the potential for the stock to mean revert on earnings release. Our analyst sees
the potential for this earnings reporting season to be more volatile than normal for the
enterprise networking sector, including Cisco.
On October 23, we recommended investors to buy CSCO straddles as options are
underestimating volatility on earnings on November 13 as well as the Insieme launch
on November 6. The straddle was recently $1.36 (stock $23.07) relative to our
recommendation to buy for $1.53 (stock $22.65). We recommend investors close out the
November $23 put options on the trade for $0.63 (2.7%, stock $23.07) while keeping on the
November $23 call options. We still see upside for the same reasons as before, but want to
reposition for optimal exposure to the earnings upside. Call buyers risk losing the premium
paid if the stock closes below the strike price on expiration.
Among the trades we prefer to highlight, we have live trade recommendation on HAL,
MON, MCD, and GWW. Additionally, we recommend investors buy RVBD December
$16 calls for $0.63 (4.1%, stock $15.33), UAL December $36 calls for $1.67 (4.7%, stock
35.53) and SAP December $80 calls for $1.15 (1.5%, stock $77.78) to position for their
upcoming analyst days.
In exhibit 7 we highlight our top recommendations where options are pricing below
average volatility going into the event. We also highlight names where the analyst day is
being held at least a month after the last earnings event. Our study shows that buying calls
Goldman Sachs Global Investment Research
November 5, 2013
United States
for an event being held at least a month after earnings is 2X as profitable as a similar
strategy for an event held 5-10 days after earnings.
Exhibit 7: Top options buying opportunities for November analyst days
1 month implied volatility, recent prices for call options that capture the analyst day
Analyst
Day
Ticker
Company
ERIC
HAL
MON
WTW
SWI
WSO
AEGR
AMD
BC
DBD
IR
XRX
GWW
ALK
FFIV
MCD
GE
RVBD
UAL
GDOT
SAP
CBG
FHN
INTC
CYT
Ericsson (ADR)
Halliburton
Monsanto
Weight Watchers
SolarWinds
Watsco
Aegerion Pharma
Advanced Micro Devices
Brunswick
Diebold
Ingersoll-Rand
Xerox
W.W. Grainger
Alaska Air Group
F5 Networks
McDonald's
General Electric
Riverbed Tech
United Continental
Green Dot
SAP
CBRE Group
First Horizon National
Intel
Cytec Industries
average
6-Nov
6-Nov
6-Nov
6-Nov
7-Nov
8-Nov
8-Nov
11-Nov
12-Nov
12-Nov
12-Nov
12-Nov
13-Nov
14-Nov
14-Nov
14-Nov
15-Nov
18-Nov
19-Nov
20-Nov
20-Nov
21-Nov
21-Nov
21-Nov
22-Nov
Avg.
days since
Analyst day
last
move
earnings
13
1.7%
16
3.7%
35
2.3%
7
14.9%
9
2.8%
23
1.2%
9
2.8%
25
4.1%
19
2.5%
13
0.6%
25
2.1%
19
3.3%
28
1.9%
21
1.6%
22
1.9%
24
1.6%
28
1.8%
21
5.3%
26
2.2%
20
na
30
4.3%
23
0.8%
34
0.3%
37
1.3%
36
5.2%
23
2.9%
1-m %-ile
vol rank
24
25
21
32
34
21
59
52
32
23
21
24
18
28
33
11
16
41
37
39
19
27
22
17
20
15
34
49
33
33
31
38
13
12
46
28
29
26
43
39
1
32
32
44
31
1
24
6
4
8
26
last
price
strike
11.86
53.13
103.22
33.92
36.45
96.16
82.76
3.33
46.19
29.28
67.52
10.28
268.96
72.42
79.74
97.41
26.42
15.33
35.52
23.75
77.78
22.87
11.00
24.03
83.15
12.00
55.00
110.00
35.00
37.50
100.00
85.00
4.00
47.00
30.00
67.50
10.00
270.00
75.00
80.00
95.00
26.00
16.00
36.00
25.00
80.00
23.00
11.00
25.00
85.00
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Dec-13
Dec-13
Dec-13
Dec-13
Dec-13
Dec-13
Dec-13
Dec-13
0.15
0.33
0.15
0.40
0.55
0.40
2.40
0.02
0.75
0.25
1.05
0.37
2.65
0.45
1.69
2.57
0.59
0.63
1.67
0.85
1.15
0.85
0.40
0.22
1.75
1.3
0.6
0.1
1.2
1.5
0.4
2.9
0.6
1.6
0.9
1.6
3.6
1.0
0.6
2.1
2.6
2.2
4.1
4.7
3.6
1.5
3.7
3.6
0.9
2.1
2.0
November 5, 2013
United States
Disclosure Appendix
Reg AC
We, John Marshall and Katherine Fogertey, hereby certify that all of the views expressed in this report accurately reflect our personal views about the
subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly,
related to the specific recommendations or views expressed in this report.
Disclosures
Option Specific Disclosures
Price target methodology: Please refer to the analysts previously published research for methodology and risks associated with equity price
targets.
Pricing Disclosure: Option prices and volatility levels in this note are indicative only, and are based on our estimates of recent mid-market
levels(unless otherwise noted). All prices and levels exclude transaction costs unless otherwise stated.
General Options Risks The risks below and any other options risks mentioned in this research report pertain both to specific derivative trade
recommendations mentioned and to discussion of general opportunities and advantages of derivative strategies. Unless otherwise noted, options
strategies mentioned in this report may be a combination of the strategies below and therefore carry with them the risks of those strategies.
Buying Options - Investors who buy call (put) options risk loss of the entire premium paid if the underlying security finishes below (above) the
strike price at expiration. Investors who buy call or put spreads also risk a maximum loss of the premium paid. The maximum gain on a long call or
put spread is the difference between the strike prices, less the premium paid.
Selling Options - Investors who sell calls on securities they do not own risk unlimited loss of the security price less the strike price. Investors who
sell covered calls (sell calls while owning the underlying security) risk having to deliver the underlying security or pay the difference between the
security price and the strike price, depending on whether the option is settled by physical delivery or cash-settled. Investors who sell puts risk loss of
the strike price less the premium received for selling the put. Investors who sell put or call spreads risk a maximum loss of the difference between the
strikes less the premium received, while their maximum gain is the premium received.
For options settled by physical delivery, the above risks assume the options buyer or seller, buys or sells the resulting securities at the
settlement price on expiry.
Buy
Hold
Sell
Buy
Hold
Sell
Global
31%
54%
15%
50%
42%
37%
As of October 1, 2013, Goldman Sachs Global Investment Research had investment ratings on 3,570 equity securities. Goldman Sachs assigns stocks
as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell
for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.
Additional disclosures required under the laws and regulations of jurisdictions other than the United States
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Where applicable, the Brazil-registered analyst primarily responsible for the content of this research report, as defined in Article 16 of CVM Instruction
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approved of, and agreed to take responsibility for, this research in Canada if and to the extent it relates to equity securities of Canadian issuers.
Analysts may conduct site visits but are prohibited from accepting payment or reimbursement by the company of travel expenses for such
Goldman Sachs Global Investment Research
10
November 5, 2013
United States
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or Sell on an Investment List is determined by a stock's return potential relative to its coverage group as described below. Any stock not assigned as
a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment Lists to a
global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular coverage
group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment
recommendations focused on either the size of the potential return or the likelihood of the realization of the return.
Return potential represents the price differential between the current share price and the price target expected during the time horizon associated
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http://www.gs.com/research/hedge.html. The analyst assigns one of the following coverage views which represents the analyst's investment outlook
on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The investment outlook over the following 12
months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the
following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over
the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.
Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an
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