An analyst has recently written the following on Goldman Sachs:
“… Goldman Sachs is a healthy company because of its improving liquidity ratios and Tier ratios. The company’s Tier 1 capital ratio and Tier 1 common capital ratio improved in the third quarter of the current fiscal as compared to the second quarter of the fiscal year 2012.
… The US economy is on its path of recovery. The unemployment rate is expected to decline in the future… with the recovery of US economy, the stock’s performance and the company’s profit margins will improve in the future.”
Although we don’t really study too much a company’s fundamentals, this one above seems reasonable. But what we really care about, is what will make the stock move in the near term. And that’s what I’d like to share, from a technical analysis standpoint.
The Bollinger Bands of the stock (in both weekly and daily charts) seem so “squeezed” that a big move seems likely in the short-term. What this means is that the 20-day volatility of Goldman Sachs’ stock has been so low compared to its 100-day that the stock is in the verge of popping (either up or down). See charts (daily and weekly):
As the stock market heads higher into year-end, we are buying December call options on this stock, expecting a 5% move within a month or so. Last time the “bands” were this “squeezed” the stock moved nicely, as you can see above.
If the stock decides to go down, we will sell immediately our calls and buy puts instead. Sometimes it’s hard to catch the direction (which is more likely to be up), but we still have time to change our minds. In this type of setup, the important thing to do is to catch the magnitude of the move.