Tesla Motors Inc (NASDAQ:TSLA) is Goldman Sachs’ analysts fifth best idea for overwriting this week. In a report dated May 30, 2014, analysts John Marshall and Katherine Fogertey set forth their list of the best candidates for both overwriting and underwriting. They say lately put selling has been outperforming.
Put selling outperforms
The Goldman Sachs team said the average 1-month implied volatility in the S&P is currently at 16.6, which is just half a point higher than last week’s 12-year lows. They say that because of how strong equities have been performing, put selling has outperformed, while overwriting has been underperforming.
Since the May expiration, they estimate that the average S&P 500 stock with liquid options has increased by 2.3%. As a result of that, they say overwriting stocks with 10% out-of-the money one-month calls underperformed by about 6 basis points, while put selling outperformed 33 basis points.
Because of how low volatility has been, plus the fact that there are few single stock catalysts coming up these next few weeks, they’re still holding off on options selling.
Sprint, Tesla in the top five short-term candidates
Marshall and Fogertey said they used their 16-year study and also the fundamental ratings and price targets from their colleagues to come up with their list of the top one- to six-month overwriting candidates. They estimate that overwriting “larger-cap stocks” with high implied volatility but that aren’t reporting earnings within the next month has added over 500 basis points each year between 1996 and 2011. They’re highlighting the top 50 opportunities for three- to six-month overwriting.
They identify Sprint Corporation (NYSE:S) as their top pick. BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) is in second place, followed by Workday Inc (NYSE:WDAY) and then Petroleo Brasileiro Petrobras SA (ADT) (NYSE:PBR). Tesla Motors Inc (NASDAQ:TSLA) falls in fifth place on the list.
They estimate that investors can collect 1.9% for 8% out-of-the-money June calls.
Here’s a quick look at the top 20. You’ll see several other big names on this list, including LinkedIn Corp (NYSE:LNKD), Netflix, Inc. (NASDAQ:NFLX), Baidu Inc (ADR) (NASDAQ:BIDU), Herbalife Ltd. (NYSE:HLF), and United Continental Holdings Inc (NYSE:UAL).