Selling Covered Call Options on Goldman Sachs (GS)

I love trading options. For me, using options is like playing chess while trading stocks is like playing checkers. The multi-variant nature of options is really great and they provide you with so many more ways to profit from what is happening in the financial world. Take Goldman Sachs and recent events in the markets.

Goldman Sachs has shown some great volatility lately as the markets have seesawed from the impact of the sub-prime mortgage fall-out. In my eyes, this volatility makes it a good stock to sell options against. The October 180 calls are priced at $13.00, which is a 7.3% stock premium. The 175 October calls are priced at $16. As the financial markets grind to a halt, it’s hard to imagine Goldman’s stock appreciating much in the next two months. Buy the stock, sell the October 175s or even the 165s and pocket the premium. My guess is that with the erosion of time, the lessening of volatility as the crisis passes, and the downward pressure on the stock, you’ll be able to buy the options back in the low single digits. You can then keep the stock, sell it, or sell some more options to generate more income.

If all of this sounds foreign to you, there is a good primer on BestCashCow regarding selling covered call options.