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In a note to clients Friday, Goldman Sachs analyst Vishal Vivek said that investors that bought calls five days ahead of earnings reports saw a 38% average return on premium so far this earnings season.
In the mid-quarter earnings update assessing tactical trades, stated the average stock reporting earnings so far this quarter has traded up 0.8% on their earnings day.
“Looking ahead, we recommend buying calls or replacing stock positions with call options ahead of the remaining earnings reports, as the broad decline in options prices has made option buying more attractive,” said Vivek. “Specifically, we like buying calls on stocks that have underperformed the S&P500 in recent days.”
According to the analyst, buying calls in the week of earnings has yielded +38% return on premium, a top quintile move going back the past 107 quarters, while buying calls on stocks that underperformed ahead of earnings have returned +58% return on premium, well above the long-term average of +12%.
“Call buying profitability has been largely driven by directional moves, as evidenced by flat returns from buying straddles around earnings,” wrote Vivek.
