Goldman Sachs is now trading again near $115, where Warren Buffett purchased the bulk of his shares.  I don’t follow Buffet’s trades, but I do recognize that his purchase price acts as a good support level.  Goldman Sachs is still mostly a big black whole of finance, and I would never risk my money on an unhedged position in Goldman.  But for a short term trade, I do like, and just initiated an option collar on Goldman Sachs.

  • Purchased 100 shares of GS (around the 115 mark)
  • Sold a May 125 covered PUT for around $6.50
  • Bought a May 115 PUT for around $6.50

Implementing the collar for May was essentially free, since I collected the covered call premium to pay for the PUT protection.  Goldman Sachs earnings are scheduled (according to this Yahoo Link)  to be released on APril 14th, just a few days ahead of April options expiration.  For that reason, I opted for the May collar, which gives me more time to adjust the collar (depending on how it looks after earnings) if need be.  With no adjustment, my profit is capped beyond the 125 level (about $1,000 max profit), which is the upper end of the collar, and my losses are capped below the 115 level.

Goldman Sachs has recovered significantly off its low of $47, and in the short term they will probably endure more financial pain.  But two of their competitors have sustained near fatal blows – Bear Stearns and Lehman Brothers.  I say “near fatal” because those organizations have been partly absorbed into other defunct organizations.  In the last month, Goldman has displayed an upward trend of higher lows and higher highs.  The chart could easily be null and void as far as an indicator of whats to come after earnings.  But based on the recent insanity in the markets (investors buying financial companies again), I like the risk/reward of this trade and just executed it for my own account earlier today.

Disclaimer: This is **NOT** trading or investment advice.  Trade at your own risk!

goldman-sachs

For more insights on option collars:

For a great book on adjusting option positions:

The Option Trader Handbook: Strategies and Trade Adjustments (Wiley Trading)
The Option Trader Handbook: Strategies and Trade Adjustments (Wiley Trading) by George Jabbour