So as regular readers may recall, Goldman has been on a quest lately to uncover opportunities in the options market to take advantage of low vol.
And by that we mean opportunities beyond the obvious “sell vol” sure bet (well, “sure” until Wednesday morning that is).
Specifically, Goldman thinks it’s about time for you to think about replacing your cash equities exposure with calls. You can read our two previous posts on that here:
- “Mark It Zero!” Goldman’s Top 10 Options Trades To Capitalize On Low Vol
- Goldman: It’s Time To Replace Your Stocks
Essentially, the argument for scouring the options market for opportunities to implement a stock replacement strategy can be summed up as follows via James McMillan III (Google him):
Well on Wednesday, presumably in light of recent events, Goldman is flipping the script and taking a look at “what stocks the option market fears.” These stocks “stand out against a very complacent overall tape.”
Here’s the color and a couple of visuals…
Via Goldman
The market is not pricing in sunshine and rainbows for all stocks — and in fact, option investors are pricing in a high degree of uncertainty for some. While we have written extensively about how fear metrics in the broad market are near record lows, there are some stocks where investor concerns are high. In fact, we find 15 stocks that the options market is pricing in an increased degree of concern, measured by skew and vol, over the next year — across a variety of sectors, including Health Care, Industrials, and Tech. Standouts include ONCE, DYN, GNC, DVA, AVB, and HTZ, among others. Fear levels are so high here that a 90% OTM put costs 12% on average for this group.
We find 15 stocks that the options market is pricing in unusually high levels of fear — which stands out against a very complacent overall tape. We have written much lately about how fear metrics broadly (i.e., VIX, skew) have relaxed to near record lows. However, it’s not that investors are not pricing in any fear anywhere. In fact, we find 15 stocks that our analysts cover where the options market is actually pricing in a high degree of downside risk in the next 12 months. This fear setup is in stark contrast to the average stock in the market where options reflect the lowest implied volatility and skew in nearly a year, if not more.
