Tesla Motors Inc (NASDAQ:TSLA) has topped Goldman Sachs’ overwriting list numerous times over the last several quarters. This time the automaker is fourth on the firm’s list of best candidates. In a report dated May 9, 2014, analysts John Marshall and Katherine Fogertey.
Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), ServiceNow Inc (NYSE:NOW) and BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) are the only three stocks which beat out Tesla Motors Inc (NASDAQ:TSLA) for overwriting this week. Shares of Vertex, ServiceNow, Biomarin and Tesla all rose in morning trading.
Short-term implied volatility nearly at all-time low
The Goldman Sachs analysts say “short-term implied volatility on the average S&P 500 stock” is now R 18.5, which is just a single point above the lowest level ever. Since the April expiration, they estimate that the average stock in the index with liquid options has declined by .4%. They say overwriting stocks with 10% out-of-the-money 1-month calls outperformed by 44 basis points. Put selling outperformed by 34 basis points.
They say health care stocks are “screen rich” compared to those in other sectors, with the average health care stock implying a 22% one-month volatility.
Tesla among the top overwriting candidates
The Goldman Sachs team said they screened for the top one- to six-month overwriting candidates using their 16-year study as a guide, along with their analysts’ ratings and price targets. They estimate that “overwriting larger-cap stocks that have high implied volatility but are not reporting in the month” added more than 500 basis points each year between 1996 and 2011.
The stocks they name are those with a June expiration. For the three- to six-month overwrites, they looked at the top 50 possibilities. They note, “Covered call sellers risk limiting upside to the strike price plus the option premium dividends. Put sellers commit to buying shares at the strike price.
Other big names on the list
As you can see from the chart, there are also numerous other popular stocks on Goldman’s short-term overwriting list this week. Some include Sprint Corporation (NYSE:S), LinkedIn Corp (NYSE:LNKD, Netflix, Inc. (NASDAQ:NFLX) and Facebook Inc (NASDAQ:FB). The analysts recommend overwriting these stocks with June 10% out-of-the-money calls.
Pandora tops underwriting list
The Goldman Sachs team also put together a list of underwriting candidates. They based their six-month put selling screen on “support levels for EV / EBITDA, EV / sales and P / FCF. They say, “Put strike to sell is derived from average of downsides to the stock price in three scenarios where each of EV / EBITDA, EV / sales and P / FCF reaches its 10%-ile value in last ten years and using out analysts’ 12-month forward estimates for EBITDA, sales and FCF.”
As you can see, Pandora Media Inc (NYSE:P) tops the list. Some other names of note include Stratasys, Ltd. (NASDAQ:SSYS), Baidu Inc (ADR) (NASDAQ:BIDU) and QUALCOMM, Inc. (NASDAQ:QCOM).