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Goldman Sachs': Analysts Divided Amidst Q2 Earnings

18-07-2023

Bank analysts are divided over Goldman Sachs’ second-quarter earnings predictions, creating a wider range of estimates than is usual for the Wall Street firm.  

Consensus for the banking giant broadly displays that it won’t be one of Goldman’s best quarters, with some predicting it might be one of the worst. Projections for earnings range from a meagre 33 cents per share to nearly $5 a share, with potential net profits exceeding $1.5 billion.  

Despite Goldman Sachs’ management indicating that this quarter would be difficult, the level of unpredictability remains high. CEO David Solomon informed CNBC in June that the bank would face losses on its commercial real estate loans, while President John Waldron forecasted a 25% year-on-year decrease in equities and fixed-income trading.  

There’s also the expectation that Goldman might have to write down several hundred million dollars on GreenSky, a home improvement lending business it acquired for $2.2bn last year but is now selling.  

Goldman’s performance continues to trail competitors like Morgan Stanley and JPMorgan Chase, which have diversified businesses like wealth management and retail banking to offset declines in trading and investment banking. This situation amplifies the challenges for Solomon, who has been Goldman’s CEO since 2018 is facing pressure to execute his diversification strategy.

 

 

If you agree that there is uncertainty regarding Goldman Sachs’ earnings and that this might lead to significant stock price movement in either direction, you could look to employ a straddle, which anticipates big movements in the stock regardless of direction. This involves buying a call option and a put option with the same strike price and expiration date. If the stock moves significantly in either direction, one of the options could become profitable.

Long Straddle

buy GS JUL 327.5 call @5.8 ($580)
buy GS JUL 327.5 Put @5.8 ($580)

Trade Idea

Long Straddle Strategy

+1 GS JUL 327.5 call @5.8 ($580) 

+1 GS JUL 327.5 Put @5.8 ($580)

Net cost: $1160

Written By

Simon Hanouka

Simon Hanouka

Desk Broker

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