For the second time in two months, Tesla Motors Inc (NASDAQ:TSLA) tops Goldman Sachs’ lists of “optimal” candidates for overwriting this week. Analysts John Marshall and Katherine Fogertey say overwriting has become even more attractive thanks to the recent performances of equity compared to credit.
They report that equities have outperformed credit on a risk-neutral basis by 4%. They also said that even though volatility is implied to be low, they see overwriting as a good idea for right now.
Tesla, 3D Systems, Herbalife, Tesoro lead Goldman’s list
Marshall and Fogertey estimate that since the November expiration, the average U.S. stock with “liquid options” is up .1%. They say overwriting with 10% OTM one-month options outperformed by 10 basis points, while put selling outperformed by 11 basis points. The average stock implied volatility on real estate investment trusts fell 1% over the last week to 20. Nonetheless, current levels are still almost 4 points away from this year’s lows so far.
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The analysts recommend not overwriting the 34 stocks which have analyst days soon, but they do like Tesla Motors Inc (NASDAQ:TSLA), 3D Systems Corporation (NYSE:DDD), Herbalife Ltd (NYSE:HLF) and Tesoro Corporation (NYSE:TSO) as their top picks for overwriting.
Tesla is Goldman’s top short-term candidate
Below we have posted Goldman’s chart of top short-term overwriting picks. Aside from Tesla Motors Inc (NASDAQ:TSLA) and Herbalife Ltd (NYSE:HLF), other stocks of note include Best Buy Co., Inc. (NYSE:BBY), Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) and Netflix, Inc. (NASDAQ:NFLX).
They recommend them for December overwriting. To come up with this list, they focused on events, market capitalization and implied volatility. Stocks which report earnings before the next expiration are automatically culled from the list. They also look for stocks with a market cap in the top two-thirds of the universe. The analysts say overwriting stocks which exhibit these characteristics has added more than 500 basis points over the last 16 years.