Goldman Sachs on the Radar

The bank earnings keep rolling along this week. Citigroup (C) broke the losing streak and now Goldman Sachs (GS) is on deck. The GS chart really intrigues me. Although I see it as a setup for volatility, I could argue it is slanted bearish into the numbers due to the bearish divergence in the Relative Strength Index (RSI) and stochastics. Both have put in lower highs, even as the stock has run back up to challenge recent highs. Still, if GS goes above $124, it has a great opportunity to break out higher. The first several financials have moved after reports, but nothing very large in my view. I believe GS is setup to break that trend.

Goldman Sachs (GS) Source: StockCharts.com View Chart » View in New Window »

Options are pricing a move around 3.75%, but I see a 5% move this week as very possible on GS. I am looking for upside in the $127 area and downside around $114. The type of play for GS would depend upon conviction of the targets. For instance, if I felt the ranges would hold, then I would want to buy an unbalanced butterfly in each direction, for instance, going long 2x October $120 calls, short 3x October $125 calls and long 1x October $130 calls. Then I would do this in the opposite direction, going long 2x October $120 puts, short 3x October $115 puts and long 1x October $110 puts. I want to get this trade as close to or under $5 if possible. Unfortunately, the trade is running in the $5.40 to $5.60 range. The reason I want it at $5 or under is because the position is only worth $5 if it were to fall under $110 or move over $130. I still don't see them as happening, so I like this play....222 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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