GOLDMAN SACHS: There’s still a killing to be made this earnings season

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A giant pile of money is just waiting for traders this earnings season.
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AMC

Earnings season has the potential to be more lucrative than ever for stock traders, yet investors still haven’t caught on.

In recent quarters, reporting companies have seen their shares move four times the normal daily average, the most in the past 18 years, according to data compiled by Goldman Sachs.

Yet options are implying an earnings move of just 4.6% in either direction, near the lowest on record. So what traders should be doing, Goldman says, is placing strategic options bets designed to benefit from outsize fluctuations.

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Reporting companies are seeing the biggest earnings moves since 1996, creating opportunities going ignored by traders.
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Goldman Sachs

“The options market has not adjusted to reflect the increasing importance of earnings for stocks returns,” Katherine Fogertey and the Goldman derivatives team wrote in a client note. “We view this set-up as very supportive of buying options ahead of earnings.”

You’d think investors would be more keen to bet on earnings reports, especially with the US stock market so sapped of actionable price swings. The CBOE Volatility Index, or VIX, slipped to a 24-year low on Friday and remains locked near its lowest level on record.

Not to mention stocks are starting to see a bigger portion of their share moves realized during earnings week. In sectors like tech, materials, and consumer discretionary, more than 30% of quarterly returns have been generated in the five days surrounding releases, according to Goldman data.

That dynamic is even more pronounced for the so-called FAAMG stocks – Facebook, Amazon, Apple, Microsoft, and Google – which have seen more than 50% of their quarterly moves during their earnings weeks.

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A look at which sectors are seeing the biggest portion of their quarterly returns during earnings week.
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Goldman Sachs

With all of this in mind, Goldman recommends the following nine earnings-related trades: