Goldman Sachs' 25 Top Trades for Q2 Earnings

Goldman Sachs’ 25 Top Trades for Q2 Earnings

  • Volatility in markets has been elevated this year, and that will only continue in Q2.
  • Goldman Sachs believes that stocks could get whacked if they can’t top a low bar.
  • The firm laid out 25 option trades that will help investors benefit from volatility.



emerged in the first half of 2022, and Goldman Sachs expects the wild swings to continue in the Q2 earnings season and through the end of the year as the economy loses steam.

“We expect an unusually volatile earnings season for single stocks,” wrote John Marshall, the head of derivatives research at Goldman Sachs, in a July 12 note.

“Single stock volatility on earnings events increased again last quarter to near a decade high. We expect earnings day moves to remain elevated even as non-earnings day moves decline with macro volatility,” Marshall said.

Equities have already come under heavy pressure this year as higher interest rates cause stock valuations to fall, Marshall noted. Investors appear to be less willing to pay a premium for future growth and give firms the benefit of the doubt, which means that earnings reports will be under even more scrutiny than usual.

“We expect earnings beats/misses to be increasingly relevant this quarter as growth slows,” Marshall wrote.

Pressure makes diamonds

It’s especially important for earnings results to impress this quarter, and Goldman Sachs appears to be optimistic that they will — for the most part, anyway.

“Our analysts’ weighted average price target implies +20% upside over the next 12 months to S&P 500 stocks in our coverage (vs 10-year average of +9% upside implied),” Marshall wrote. “Based solely on this metric’s relationship with quarterly returns, we would expect stocks to be up 6.0% this quarter.”

Options pricing also implies moves of about 6%, which Marshall noted was the third highest mark in the past 12 years heading into an earnings season. While that stat means that misses might cause more pain than usual, it also suggests that stocks could be a coiled spring.

“High fear priced for earnings sets stocks up for relief rallies on earnings-day,” Marshall wrote.

25 options trades to make

In a highly volatile earnings season, there are bound to be both sudden relief rallies and huge letdowns. Betting on the wrong stock — or not betting on the right stock — can be costly.

Though it’s impossible to know exactly which names will be winners or losers, investors can consider using option contracts to define their risk upfront and benefit from large stock swings.

“We continue to see option buying strategies as attractive ahead of earnings events,” Marshall wrote.

Marshall and his team searched for the “most out-of-consensus” opportunities out of over 1,300 names, meaning Goldman Sachs analysts are either much more bullish or bearish on those companies’ forward earnings outlook than the rest of Wall Street. In the end, Goldman Sachs’ derivatives research team laid out 25 option trades that allow traders to take advantage of volatility.

Seventeen of these trades are for stocks that the firm is bullish on, so the recommendation is to buy a call option to benefit as the equity rises above a certain level, which is called the strike price. If that happens within the specified timeframe, then trade is profitable.

Eight trades are for stocks that Goldman Sachs is less optimistic about, so the recommendation is to buy a put option to profit as shares of a company fall below the designated strike price.

Below are the 25 option trades that Goldman Sachs believes will be profitable in a volatile Q2 earnings season. Along with each is its ticker, sector, Goldman Sachs earnings estimate versus the consensus, implied stock move, a thesis from an analyst, and the options trade idea. The first 17 recommendations are for buying a call, and the last eight are for buying a put.

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