Goldman Sachs Says 3 Stock Options Are Poised for a Surge — Here’s How to Get in the Game

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Goldman Sachs’ derivatives research team has outlined some stocks it believes are poised as buying opportunities for investors. The stocks have underperformed by at least 6% over the past month, CNBC reports.

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Some of the stock options Goldman Sachs recommended were:

  • Morgan Stanley: May calls at $80 strike price
  • Activision Blizzard: May calls at $97.50 strike price
  • AT&T: May straddle at $30 strike price

So, what does this mean?

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Stock options are different from buying regular stocks. Options are an “option” you purchase that gives you the right to purchase a stock at a particular price. Let’s take Goldman’s recommendation of Morgan Stanley. 

Goldman believes Morgan Stanley (NYSE: MS) has the potential to increase in value. You could wait to purchase it whenever you’d like, but then you’d have to pay market price. Prices fluctuate throughout the day and certainly change from day to day. A “call” option lets you purchase the stock at the strike price Goldman Sachs recommends.

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Say, for example, Morgan Stanley increases to $95 but you have purchased a “call” option at $80. This means that regardless of how much the price has increased, you can purchase the stock for — or “call it back” to — $80. This would leave you with a $15 profit per share. An “$80 strike” simply means that you have set the boundary at $80 and will not buy above that price — in other words, you will “strike” at $80. The same goes for Activision Blizzard (NASDAQ: ATVI), which also has a call recommendation.

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In the reverse, a “put” option gives an investor the option to sell at a particular price for a particular window of time. Say, for example, Morgan Stanley dropped to $60 a share, but you own a put option at $80. Regardless of how low the price drops, you can still sell your shares and take a profit profit by selling Morgan Stanley for $80 per share.

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Goldman Sachs makes a different kind of recommendation for AT&T stock. In this case, it recommends AT&T (NYSE: T) as a straddle. A straddle is when you “straddle the investment” with weight on both sides, meaning you buy both a call and a put on the same stock.

“Straddles may make sense if the trader thinks the market is undervaluing potential volatility, but isn’t sure which way the stock will move,” CNBC explains.

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Goldman suggested a straddle option for AT&T ahead of its earning report tomorrow because of uncertainty as to which way the earnings will go. It’s important to keep in mind that straddles are only as profitable as the price for which you can ultimately sell the asset less premiums you paid to purchase the straddle. 

For Goldman Sachs to recommend call options for Morgan Stanley and Activision means it believes the stocks are currently underperforming or are undervalued, and and that there is upside potential — that is, potential for the stocks to increase in value. 

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Banks stocks in general took a dive during the pandemic, according to The Wall Street Journal, but there is a positive outlook for the sector with the economic recovery already underway. Morgan Stanley’s earnings report will be released on Friday, April 16. Goldman Sachs analysts see 10% upside over the next year for the bank, CNBC reports.

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Activision Blizzard is the company of Call of Duty fame, and Goldman Sachs video game analysts predict a strong quarter for the company. 

CNBC adds that Goldman Sachs sees potential volatility for the telecom stock AT&T, thus the “covering both sides of the bet” investment recommendation.

Options can be bought through trading platforms and companies but can require minimum balances in the account beforehand or extra disclosures. Options are riskier than usual investments, as a lot of money can be made — and lost — very quickly. It is always best to seek the advice of a financial advisor or professional before getting into this type of investing. Even straddles and puts, which might seem like safer options, can lose you all your capital, depending on how they are structured.

Should you prefer to go at it alone, start small, with one or two options at most and with a low number of shares. Once your portfolio starts to grow, consider working with a professional to see how to maximize your portfolio’s performance while also safeguarding your assets.

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About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 
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