As 2015 draws to a close, Goldman identifies 15 straddle-buying opportunities on stocks with liquid options, reporting in December. Our studies analyzing historical earnings events show at-the-money straddles are systematically undervalued ahead of the event. Buying straddles ahead of earnings has returned 10% through early December vs. the long term average of 2%.
As Goldman Sachs writes, our studies analyzing historical earnings events show at-the-money straddles are systematically undervalued ahead of the event.
Buying straddles ahead of earnings has returned 10% through early December vs. the long term average of 2%.
The average cost of a straddle on this list is only slightly above the historical earnings move despite capturing more than a week of trading days outside earnings. We see KMX, ACN and ORCL particularly inexpensive compared to prior earnings moves.
Straddle buyers risk losing the premium paid if shares close at the strike price on expiration.