Goldman Sachs identifies an options strategy with a 16-year track record of juicing returns — and shares 20 trades to benefit from it

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  • Earnings season will create more volatility in the stock and options markets in the coming weeks.
  • That makes this a risky period, and Goldman Sachs recommends applying an overwriting strategy.
  • It says that’s a relatively safe way to get some extra options income during this tricky period.

Almost everybody who’s investing today is looking for new ways to earn reliable income, since it doesn’t look like stocks or bonds are going to deliver explosive returns anytime in the near future.

Goldman Sachs is attempting to do just that in the options market using overwriting, or selling options that the seller does not expect to be exercised. The options then expire, and the seller can keep the premium from selling the option. Overwriting is also sometimes used as a way to hedge against long positions in stocks.

A team composed of John Marshall, head of derivatives research for Goldman Sachs Research; vice president of derivatives research Vishal Vivek; analyst Rohith Medarametla; and vice president Arun Prakash wrote in a recent note to clients that the coming weeks should be volatile, which makes it a risky time to sell options.

That’s why they’re recommending a short-term strategy that involves options in companies that aren’t about to report their earnings, and aren’t expected to pre-announce their results or give other major news in the coming weeks. They wrote that it’s been a successful approach to the options market during previous periods like this one.

“We identify stocks that do not report earnings prior to the next expiration where their market cap is in the top 2/3 of the universe and their implied volatility is also in the top 2/3,” they wrote. “We have found that overwriting stocks with these characteristics has added over 500 bps over the past 16 years.”

The group is telling investors to consider buying calls on the 20 stocks that will expire on February 23. Those options, assuming they expire without being exercised, would generate significant premia that would provide extra income or cushion an investor’s portfolio against volatility.

The strike prices, recent call prices, and potential premia based on those prices are listed with the stocks below.