“To be clear, we view this as an extremely complex question, and importantly one that cannot be easily analyzed by just simply looking at sales by region”, Goldman writes on Wednesday, in what is a late candidate for understatement of the year.
The “extremely complex question” is, basically, how to trade the trade war through individual stocks.
That question is front and center ahead of this week’s “binary nightmare” in Buenos Aires, where Xi Jinping has the unenviable assignment of trying to divine what’s going on inside of Donald Trump’s “very large brain” over dinner on the way to placating the U.S. President and, hopefully, rescuing the market from a year-end selloff.
At the index level, folks appear to be positioning for an outsized move one way or another and depending on what you want to look at, there was some evidence this week that FX traders are looking for a relief rally in the yuan following an assumed benign outcome.
For their part, Goldman set out to identify a basket of stocks with liquid options that have a history of performing poorly around trade headlines since Trump commanded the USTR to look into tariffs on an additional $50-60 billion in Chinese goods back in March (i.e., when this whole thing really started to spiral out of control).
“In total, we identified nearly 20 stocks that fit our options liquidity parameters that have been more negatively impacted by trade news”, Goldman writes, adding that “these stocks are down nearly 40% since 21-March (ranging from down 21% to down 64%).”
(Goldman)
So, if what you want to do is bet that something ostensibly positive and market moving will come out of the G20, you can buy relatively cheap calls on some of these names, which include eBay, Fluor, Skyworks, Lam Research, Microchip Tech, Applied Materials, Nvidia and a host of others.
If that’s too risky for your blood, you might be more comfortable expressing the same view via sector ETFs which, Goldman dryly notes, “offer potentially greater liquidity in certain circumstances.” They apply the same logic and methodology to identify those sectors and the results are predictable:
(Goldman)
There you go. If you’re in the mood to bet that Donald Trump’s “gut” (which, you’re reminded, “tells him more sometimes than anybody else’s brain can ever tell him”) will prompt him to strike a temporary trade truce with Xi over chocolate cake in Buenos Aires, you can buy some “cheap” OTM calls which will invariably expire worthless.
As Trump would say: “Enjoy!”
I’ll stick with cash, thanks.
I might consider a long strangle rather than calls… but heck, what do i know