These Three Giants Have An Options Strategy That Pays Off In Either Direction

There are a few Wall Street giants ripe for straddle purchases that Goldman Sachs is eyeing up.

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A note published by the firm on Wednesday details stocks that are expected to outperform or underperform in the coming quarters. Walmart, Nvidia, and Facebook-parent Meta Platforms stood out as some of the major players.

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Since mutual funds are underweight on the stocks of all three companies, Goldman expects strong volatility on earnings day. At-the-money straddles are recommended by the firm.

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In call options, the investor is given the right to purchase the underlying stock at a stated price, while in input options, the investor is given the right to sell the stock. With a straddle strategy, you buy a call and a put with the same strike price.

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The straddle is most attractive when markets are volatile because it implies a sharp rise or falls in security. Each company's implied earnings day move was also charted against its eight-quarter average by Goldman Sachs.

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As soon as the bell rings on April 26, Meta will release its quarterly earnings report. Nearly 80% of the shares have gained value this year. As planned, the company laid off a large number of technical employees on Wednesday.

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However, Goldman recommends straddling purchases for contracts that expire on April 28 for $20.35 per share for the company led by Mark Zuckerberg. Meta shares are expected to move 9.8% on earnings day, and Meta's stock averages 14% over the past eight quarters.

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In 2023, Walmart is also up, gaining just over 6%. In a recent announcement, the company announced that it was parting ways with chief merchandising officer Charles Redfield. With consumers spending less on discretionary items, Walmart's forward guidance for the year ahead was cautious.

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Goldman recommends an at-the-money straddle of $7 with an expiration of May 19 before the company reports quarterly results on May 18. A 4% swing is expected on Walmart's earnings day, compared to a 1.4% swing on average over the past eight quarters.

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A staggering 90% gain has been posted by Nvidia's shares since the year began. Also on Tuesday, HSBC upgraded the stock due to the company's investments in artificial intelligence. In the wake of the market's close on May 24, the company will announce its earnings.

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According to Goldman, the at-the-money straddle expires on May 26 at $33.50. Meanwhile, the eight-quarter average is 5.7% for Nvidia's earnings day move.

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