GOLDMAN SACHS: Here's how to make a killing in the market this Black Friday

AP Images / Gunnar Rathbun

  • Goldman Sachs says this holiday quarter is going to account for a bigger percentage of annual sales for retailers than in years past.
  • The firm says options investors aren’t adequately pricing in the potential for single-stock volatility, creating opportunities in the market.

Everyone knows the holiday season creates loads of good deals for consumers. But stock traders are also presented with money-making opportunities – they just have to know where to look.

That’s where Goldman Sachs comes in. The firm sees the annual shopping holiday known as Black Friday whipping up volatility in retail stocks, and has some ideas how traders can profit from those price swings.

Before we get into those specific recommendations, let’s take a minute to quantify how important Black Friday and the overall holiday season are to the bottom lines of retailers – and explain why this year is particularly compelling.

Goldman estimates that one-third of annual retail sales come in the fourth quarter. The firm says that over the past three years, November and December have been three-to-four times more important for retail stock returns than the other 10 months of the year.

Further, Goldman’s analysts forecast that nearly 35% of yearly revenue for retailers will come this holiday season, the biggest share since the fourth quarter of 2007.

11 22 17 black friday COTDGoldman Sachs Global Investment Research

“Black Friday has marked a key catalyst for the sector historically as many investors use it as a gauge for the remaining holiday demand,” Katherine Fogertey and the Goldman derivatives team wrote in a client note. “While we acknowledge that Black Friday has become less important (rise of Cyber Monday, store closures, online shopping opportunities), we still see potential for turnout data to move the sector – even more than the options market is pricing in.”

Without further ado, as Black Friday approaches, here are three single-stock trades put forth by Goldman that can help you make a killing:

1) Buy Ulta Beauty straddles for earnings and holiday demand

Trade: Buy monthly Ulta Beauty straddles expiring in January 2018, with a strike price of $US200. (Note: A straddle involves the purchase of both call and put contracts, and is used to play a big move in either direction.)

Rationale: Option investors are pricing in the potential for shares to move +/-11% on earnings, which is above the median fourth-quarter realised move. And Goldman forecasts that the company will be even more volatile than usual, with its stock down 36% from its June 2017 highs. The firm is bullish on the stock, seeing 34% upside.

2) Buy Kohl’s straddles to hedge holiday weakness

Trade: Buy monthly Kohl’s straddles expiring in January, with a strike price of $US42.50.

Rationale: Kohl’s has great potential to be volatile this holiday season, but options traders are pricing in an “unusually low potential for volatility.” The firm is bearish on the stock, seeing 24% downside.

3) Buy Macy’s puts for holiday sales

Trade: Buy monthly Macy’s puts expiring in January, with a strike price of $US20.

Rationale: Goldman expects Macy’s to earn a bigger percentage of its annual sales during this holiday season than in past years, creating the potential for volatility. Despite the company’s 44% year-to-date decline, Goldman notes that options investors are not hedged for further downside risk.

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