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November 5, 2013

United States

Weekly Options Watch

Options Research

Trade Ideas: JWN, NVDA, CSCO, GWW


Trade Recommendations: CSCO, DNR, EXP, GE, GWW, HFC, JWN, MCD, NVDA, RVBD, SAP, UAL (2)
One page of WOW (3)
Options Insight: 3Q earnings so far; no doubt about it, BUY CALLS (4-6)
Detailed Trade Ideas: JWN, NVDA, CSCO, GWW, Upcoming Analyst Days (6-9)
Weekly Options Watch Chartbook Published today alongside the Weekly Options Watch, contains correlation,
skew, term structure and sector-wide volatility screens for our WOW Coverage Universe.

Options Insight: Stocks are pre-trading positive earnings, flat on


earnings day
We analyzed the stock and option price moves for all stocks that have
reported 3Q to date. Long stock trades in the five days ahead of each
earnings event returned an average of +1.2%, but stocks were flat on
average on their earnings events. This has been the most profitable quarter
in four years for our favorite trade of owning calls from 5 days before
earnings to 1 day after (+34% average returns, mid-market). We identify
opportunities for investors to position with options ahead of earnings on
recent underperformers including NVDA, P, WDAY, PANW and MCP.

John Marshall
(212) 902-6848 john.marshall@gs.com
Goldman, Sachs & Co.

Katherine Fogertey
(212) 902-6473 katherine.fogertey@gs.com
Goldman, Sachs & Co.

Trade Recommendations: JWN, NVDA, CSCO, GWW, Analyst Days


Trade 1: Position for additional volatility on JWN earnings on 14-Nov.
Sluggish apparel datapoints ahead of the holiday season raise the potential
for a volatile earnings report.
Trade 2: Buy NVDA calls for earnings on 7-Nov as our analyst sees shortterm upside potential on a solid 3Q and in-line 4Q guidance.
Trade 3: Buy CSCO calls ahead of product launch and earnings. Our
analyst sees upside potential on their 13-Nov earnings event.
Trade 4: GWW option prices are low for 13-Nov analyst day, despite the
fact that shares move +/-2% on prior events. Position with calls.
Trade 5: Analyst day call buying opportunities. Our studies show November
as the most active month in terms of company analyst days. We highlight the
top opportunities for investors over the next month; SAP, UAL and RVBD.
Trade Close: We close our recommendations in XRX at a gain, and the
CSCO put at a loss. Between publications, EXP and TGT were closed at
gains, while KR was closed at a loss.

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors
should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors
should consider this report as only a single factor in making their investment decision. For Reg AC certification and other
important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by
non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S. This report is intended for
distribution to GS institutional clients only.
1
The Goldman Sachs Group, Inc.

Global Investment Research

Trade recommendations summary


We recommend adding 12 trades, holding 8 trades and closing 2 trades this week. 3 trades
were closed between publications. The table below focuses on the catalyst-based
recommendations discussed in the WOW; for our macro and thematic recommendations,
we refer readers to our other cross-product reports on GS360.
Exhibit 1: Trade recommendations summary
Recommendations and indicative prices as of November 6, 2013 close.
Initial price
Stock

Trade Description

Initiation date

Add to these trade recommendations


CSCO
BUY Nov-13 $23 CALL

Stock

Current price

Trade

Stock

Trade

7-Nov-13

22.65

0.59

23.07

DNR

BUY Nov-13 $19 CALL

30-Oct-13

19.35

0.80

19.13

0.72
0.65

EXP

BUY Dec-13 $77.5 CALL

11-Sep-13

75.01

2.55

78.06

3.90

GE

BUY Nov-13 $26 CALL

30-Oct-13

26.21

0.52

26.42

0.59

GWW

BUY Nov-13 $270 CALL

7-Nov-13

268.96

2.65

268.96

2.65

HFC

BUY Jan-14 $46 CALL

23-Oct-13

45.48

2.40

46.43

2.55

JWN

BUY Nov-13 $60 STRADDLE

7-Nov-13

60.34

2.30

60.34

2.30

MCD

BUY Nov-13 $95 CALL

30-Oct-13

96.05

1.67

97.41

2.57

NVDA

BUY Nov-13 $15 CALL

7-Nov-13

14.80

0.34

14.80

0.34

RVBD

BUY Dec-13 $16 CALL

7-Nov-13

15.33

0.63

15.33

0.63

SAP

BUY Dec-13 $80 CALL

7-Nov-13

77.78

1.15

77.78

1.15

UAL

BUY Dec-13 $36 CALL

7-Nov-13

35.53

1.67

35.52

1.67
0.45

Continue to hold these trade recommendations


CCL
BUY Jan-14 $38 CALL

21-Aug-13

36.16

1.20

35.39

EOG

BUY Nov-13 $185 CALL

23-Oct-13

185.15

6.10

179.73

3.20

GRPN

BUY Nov-13 $9 CALL

30-Oct-13

9.44

1.05

10.28

1.67

HAL

BUY Nov-13 $55 CALL

30-Oct-13

53.25

0.43

53.13

0.33

MJN

BUY Nov-13 $85 CALL

30-Oct-13

82.80

0.75

82.07

0.66

MNST

BUY Dec-13 $65 CALL

31-Jul-13

60.27

3.70

57.52

0.75

MON

BUY Nov-13 $110 CALL

30-Oct-13

106.62

0.93

103.22

0.15

BUY Nov-13 $6 PUT

16-Oct-13

6.03

0.25

7.19

0.01

Close these trades


XRX
BUY Nov-13 $10 CALL

30-Oct-13

9.81

0.13

10.28

0.37

CSCO

23-Oct-13

22.65

0.94

23.07

0.63

Previously closed trades


EXP
BUY Jan-14 $72.5 CALL

12-Sep-13

69.51

4.80

75.01

6.00

KR

BUY Nov-13 $43 CALL

23-Oct-13

42.71

0.65

42.91

0.50

TGT

BUY 1-Nov Weekly $64 CALL

15-Oct-13

63.67

0.86

65.90

1.93

BUY Nov-13 $23 PUT

Full trade idea references with risks:


EXP trade close (31-Oct)
https://360.gs.com/gs/portal/?st=1&action=action.binary&d=15915190&fn=/document.pdf
KR, TGT trade close (31-Oct)
https://360.gs.com/gs/portal/?st=1&action=action.binary&d=15901667&fn=/document.pdf
DNR, GE, GRPN, HAL, MCD, MJN, MON, XRX trade ideas (30-Oct)
https://360.gs.com/gs/portal/?st=1&action=action.binary&d=15896453&fn=/document.pdf
CSCO, EOG, HFC, KR trade ideas (23-Oct)
https://360.gs.com/gs/portal/?st=1&action=action.binary&d=15849715&fn=/document.pdf
S trade idea (16-Oct)
https://360.gs.com/gs/portal/?st=1&action=action.binary&d=15807244&fn=/document.pdf
TGT trade idea (15-Oct)
https://360.gs.com/gs/portal/?st=1&action=action.binary&d=15785091&fn=/document.pdf
EXP trade idea (11-Sep)
https://360.gs.com/gs/portal/?st=1&action=action.binary&d=15594556&fn=/document.pdf
CCL trade ideas (21-Aug)
https://360.gs.com/gs/portal/?st=1&action=action.binary&d=15494902&fn=/document.pdf
MNST trade idea (31-Jul)
https://360.gs.com/gir/portal//?st=1&action=action.binary&d=15382295&fn=/document.pdf

Legend:
Add to these trade recommendations: These are
open trade ideas where we think there remains a good
opportunity for investors to add new money. We
believe the trade is still attractive, the majority of the
catalysts have not yet happened and there is still a
significant portion of the time to expiration.
Continue to hold these trade recommendations:
These are open trade ideas where we think the
risk/reward on the trade is still favorable; we
recommend that investors who hold the position
continue to do so. We would not recommend adding
new money for one of the following reasons: (1) many
of the key catalysts have passed, (2) the trade has
moved significantly toward the place we expected it to
move to, or (3) there is not enough time before
expiration to put on a fresh trade.
Close these trades: With this report, we close our
recommendations on these trade ideas for one of the
following reasons: (1) the major catalysts have passed,
(2) the fundamental thesis has changed, or (3) the
trade has already moved to where we thought it
should.

Source: Goldman Sachs Global Investment Research, Bloomberg. Note: A negative value indicates that investors collect premium to put on the trade.

Exhibit 2: One page of WOW summary of upcoming catalysts for select trade recommendations
Event Move
Options
8Q
Implied Average
8.1
6.7

Ticker
CSCO

Recommended
Options Trade
Buy Nov-13 $23 Call

Upcoming
Catalyst
Insieme Launch
Earnings Release

Catalyst
Date
6-Nov
13-Nov

1M
iVol
29

3M Brief Summary of Trade Thesis


iVol For more details and risks please view exhibit 1
25 We recommend investors position with calls going into a potentially volatile
period. Our analyst is positive on shares and expects upside on CSCO earnings
event.

NVDA

Buy Nov-13 $15 Call

Earnings Release

7-Nov

6.0

3.1

31

28

DNR

Buy Nov-13 $19 Call

Analyst Day

11-Nov

36

31

GWW

Buy Nov-13 $270 Call

Analyst Day

13-Nov

18

20

We recommend investors to buy GWW November calls as options are


inexpensive ahead of a historically volatile analyst day.

JWN

Buy Nov-13 $60 Straddle

Earnings Release

14-Nov

3.5

2.1

22

21

Buy Nov-13 $26 Call

Analyst Day

15-Nov

16

18

We recommend investors position with JWN straddles as sluggish apparel


datapoints ahead of the holiday season point to a particularly volatile earnings
event.
While GE analyst days have been historically volatile with +/- 1.8% average
move (39 observations), GE Capital analyst days have been even more volatile
with +/- 2.0% average move (5 recent observations).

GE

EXP

Buy Dec-13 $77.5 Call

EAP Ruling

Nov-13

31

31

Our analyst is bullish on EXP as the frac sand permitting process is on track,
with the public comment period ending on November 6. The state EPA decision
is expected a few weeks thereafter.

HFC

Buy Jan-14 $46 Call

Cyclical product pricing


Saturation of Gulf Coast

Q4 2013
2014

30

30

We recommend positioning for upside over the next 3 months. Our analyst
belives 3Q will likely mark a bottom for shares, but sees potential for recovery on
the back of multiple catalysts.

Our analyst sees short-term upside potential for shares on a solid 3Q report and
in-line 4Q guidance. We recommend buying November expiration NVDA calls
as option prices are inexpensive.
Our analyst expects the upcoming analyst day to be particularly significant as
management plans to announce its decision regarding the corporate
restructuring options it has been considering.

Source: Bloomberg, Goldman Sachs Global Investment Research.

Options Insight: Stocks are pre-trading positive earnings and flat


on earnings day
Stocks have traded up more than normal ahead of earnings events on average (+1.2%
in the five days before earnings) followed by flat stock price returns on average for
earnings day. This has been the most profitable quarter in four years for our favorite
trade of owning calls from 5 days before earnings to 1 day after (+34% on average,
mid-mkt). We identify opportunities for investors to position with options ahead of
earnings events on recent underperformers including NVDA, P, WDAY, PANW, and
MCP.
This is larger than the average pre-earnings performance over the past 20 quarters, and
nearly 2X the long term average, going back to 1996. We believe the strong pre-trading of
positive earnings reports and the low implied volatility environment has combined to yield
outsized gains for call buying this quarter. Buying calls on stocks during their reporting
week has returned 34% quarter-to-date, on-track to potentially be the best quarterly
performance in nearly four years.
Exhibit 3: Stocks have traded up before earnings[dark blue] but have been flat on earnings[light blue] on average in 3Q
We estimate 337 stocks with liquid options have reported as of 31-Oct

5%

Avg stock move 5 days before to 1 day before earnings


Avg stock move on earnings day

Average Stock Move

4%

Stocks trade up in the 5 days ahead of earnings


and up small on earnings; this qtr the 5 days
before were up 1.2%, but earnings day was flat.

3%
2%
1%
0%
-1%

Avg

2013 Q4

2013 Q3

2013 Q2

2013 Q1

2012 Q4

2012 Q3

2012 Q2

2012 Q1

2011 Q4

2011 Q3

2011 Q2

2011 Q1

2010 Q4

2010 Q3

2010 Q2

2010 Q1

2009 Q4

2009 Q3

2009 Q2

2009 Q1

-2%

Source: Goldman Sachs Global Investment Research.

See Trading Events:


Earnings Volatility (part
1) July 14, 2011 for
methodology details
and general results of
our earnings study

Our studies, analyzing 38,000+ earnings events since 1996, show call buying ahead of
earnings events to be the more profitable of option buying strategies. With the results of
3Q earnings season to-date we reiterate our conclusions from the study. So far, buying

calls on stocks during their reporting week has returned 34%, on-track to potentially
be the best quarterly performance in nearly four years. Year-to-date call buying ahead
of earnings events has returned 21%, the best year since 2005. Further, the positive
setup into earnings has helped push strangle buying returns to above average levels.

November 5, 2013

United States

Exhibit 4: Call buying for earnings has seen exceptional returns quarter-to-date, while
strangle buying returns are just above long-term average levels
Buy first out of the money options 5 days ahead of earnings and close 1 day after
Average of Call buying returns

Profit/Loss, return on premium

50%

Average

Call buying ahead of


earnings has
consistently
34%
outperformed

45%
40%
35%
30%
25%
20%
15%
10%
5%

Average

10%

2013 Q4

2013 Q3

2013 Q2

2013 Q1

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

Average of Strangle buying returns

15%

Strangle buying ahead


of earnings has seen
positive performance on
average
4%

5%
0%
-5%

2013 Q4

2013 Q3

2013 Q2

2013 Q1

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

-10%

1996

Profit/Loss, return on premium

1996

0%

Source: Goldman Sachs Global Investment Research.

Underperformers ahead of earnings have been outstanding performers in the


earnings period. Our historical study shows that buying calls on stocks that
underperformed the market going into their earnings event was nearly 9% greater than the
return on names that outperformed. So far this quarter, the top call buying names in our
liquid universe have been ABT (+1488%), APOL (+704%), JNJ (+686%), BP (+620%) and BLK
(+529%). Each of these underperformed the market in the two weeks leading to the

event, averaging a -3.3% performance against the S&P 500.


This week we identify 15 stocks that have underperformed the market by at least 3% over
the last two weeks, and have the potential to yield higher than average profitability on call
buying.

Goldman Sachs Global Investment Research

November 5, 2013

United States

Exhibit 5: Stocks with potential to mean revert on earnings


Buy rated names reporting in November; see below for more details on NVDA

Ticker
MTOR
NTAP
NVDA
LGF
P
NUAN
WDAY
PANW
MCP
MDRX
DLTR
BZH
NRG
ARUN
FWLT

Company
Meritor
NetApp
Nvidia
Lions Gate
Pandora
Nuance Comm
Workday
Palo Alto
Molycorp
Allscripts
Dollar Tree
Beazer Homes
NRG Energy
Aruba
Foster Wheeler

Rating
B
N
N
N
B
N
N
B
N
N
B
N
N
N
N

2wk Perf.
Last
vs
Price ($) S&P 500
(16%)
6.79
(8%)
38.74
(8%)
14.82
(8%)
34.94
(7%)
25.67
(7%)
15.98
(6%)
77.19
(5%)
42.44
(5%)
5.07
(5%)
14.53
(4%)
57.96
(4%)
18.00
(3%)
28.25
(3%)
18.57
(3%)
27.50

Earnings Implied
8Q Avg Implied Date
Move (%) Move (%) 8Q Avg
13-Nov
14.2
8.9
5.3
13-Nov
8.3
6.2
2.1
7-Nov
6.0
3.1
2.8
8-Nov
6.8
4.5
2.3
18-Nov
17.8
14.2
3.6
25-Nov
10.3
7.7
2.5
28-Nov
10.6
1.6
9.0
26-Nov
10.9
4.9
5.9
7-Nov
7.6
13.7
-6.2
7-Nov
9.4
11.4
-1.9
21-Nov
4.1
3.9
0.3
7-Nov
8.7
4.8
3.9
12-Nov
3.5
1.9
1.7
21-Nov
9.8
10.8
-1.0
7-Nov
7.7
6.0
1.7

1-mon
Implied %-ile
Volatility Rank
77
97
35
64
31
50
42
98
76
78
51
98
38
38
51
83
67
20
41
63
23
17
52
72
30
73
49
59
37
83

Source: Goldman Sachs Global Investment Research. Data as of 4-Nov close

Position for volatility in stocks where buying options has paid off consistently. Our
historical studies of analyzing strangle buying opportunities for earnings events point to a
number of stocks which show a consistent pattern of higher volatility than is priced into the
options market. In exhibit 5 we highlight five such stocks which have returned greater than
20% profit when buying the first out-of-money strangles 5 days before earnings and closing 1
day after, at a greater than 40% hit rate over the past 18 years. This is higher than the 3%
return and 35% hit rate on the average liquid stock over the course of the entire study.
Exhibit 6: Buy strangles on stocks with consistent patterns of profitability
ANF also holds an analyst day event on 6-Nov, the stock moved +11% on the last analyst day in 2011

Ticker
WFM
SHLD
ANF
DIS
PRU

Company
Whole Foods
Sears Holdings
Abercrombie & Fitch
Walt Disney
Prudential Financial

Last
Rating Price ($)
B
63.49
NC
60.86
N
38.21
N
68.81
B
81.57

Historical Profitability
Return
Hit Rate
41%
61%
29%
41%
26%
41%
24%
47%
23%
41%

Earnings Implied
8Q Avg Implied Date
Move (%) Move (%) 8Q Avg
6-Nov
7.3
6.6
0.7
21-Nov
12.1
9.8
2.3
21-Nov
14.7
13.6
1.1
7-Nov
4.0
2.2
1.8
6-Nov
4.1
4.2
-0.1

1-mon
Implied %-ile
Volatility Rank
32
89
60
93
66
98
21
62
25
60

Source: Goldman Sachs Global Investment Research. Data as of 4-Nov close

Trade 1: Buy JWN straddles ahead of November 14 earnings


Sluggish apparel datapoints ahead of the holiday season raise the potential for JWN
volatility on their upcoming earnings event. With implied volatility only in-line with
the average relative to the past year, we recommend buying November 16 expiration
$62.5 straddles for $2.3 (3.7%) to gain exposure to a big move.
Goldman Sachs Broadline Retail analyst Stephen Grambling believes that the
upcoming JWN earnings release has higher swing potential than normal. He feels
sentiment is tepid across all department stores given recent sluggish apparel industry data
points, but his FY13 EPS of $3.68 still sits at the high end of managements $3.60-$3.70
Goldman Sachs Global Investment Research

November 5, 2013

United States

guidance. If sales continue to remain weak, he sees management reigning in SG&A to limit
the damage to the bottom line. By contrast, flat-to-positive comps would represent a
meaningful upside surprise amidst the current apparel environment. Earnings reports from
peers Macys (M, November 13) and Kohls (KSS, November 14) could also move JWN even
before their own earnings report.

JWN option prices are inexpensive ahead of potentially volatile November 14


earnings release. We recommend buying the November straddle to capture the earnings
volatility of JWN as well as peers. JWN 1 month implied volatility of 22 is only at 1-year
average levels and 3 points below the average level in the past two years. JWN shares
have moved an average of +/-2% on earnings-day for the past eight events, but we see the
potential for a much larger move this quarter. Straddle buyers risk losing the premium paid
if the shares close at the strike price on expiration.

Trade 2: Buy NVDA calls to position for solid earnings relative to


peers
Goldman Sachs Semiconductors analyst James Schneider sees short-term upside
potential for shares on a solid 3Q report and in-line 4Q guidance. Options prices are
low ahead of the report on Thursday and, we recommend buying November 16
expiration $15 calls for $0.34 (2.3%, stock $14.80).
Our analyst expects Nvidia to report 3Q sales in the upper half of guidance, with upside
driven by trends in the overall PC graphics market (IDC data shows PC units up 8% qoq)
and growth in the workstation business (on solid industrial growth). Given weak reports
from most semi companies which have reported this quarter, our analyst expects the stock
to trade higher if it reports a relatively healthy quarter. Nvidias step-up in cash returns to
shareholders (via the dividend and repurchase) is a clear positive for the stock. Given that it
is the first earnings call with new CFO Colette Kress, we could also see higher volatility
than normal. For more details on our analysts expectations, see NVDA, AEIS, and ARX
earning previews; short interest update, published November 3, 2013.

NVDA 1-month implied volatility is 5 points below its 2-year average; Buy November
$15 calls for $0.34 (2.3%, stock $14.80). NVDA option prices are inexpensive ahead of
upcoming earnings release. NVDA has underperformed S&P500 by 8% in the past two weeks.
Our 18+ year study analyzing 38,000 earnings events shows that call buying on stocks that
have underperformed the market ahead of their earnings has produced a 20% return on
premium, nearly double the return on premium from buying calls on the average stock. Call
buyers risk losing the premium paid if the stock closes below the strike price on expiration.

Trade 3: Buy CSCO calls ahead of product launch (Nov 6) and


earnings (Nov 13)
Option prices are low and Goldman Sachs Telecom Equipment analyst Simona
Jankowski expects shares to trade up on earnings. We recommend buying calls to
position for upside volatility.
Insieme product launch (06-Nov): CSCO is set to unveil its much anticipated Insieme
product at an event in NYC headlined by CEO. We expect Insieme launch to include a 100G
cloud data center switching fabric with industry-leading speeds and feeds as part of its
Application-Centered Infrastructure. The key focus will be on how Insieme is positioned

Goldman Sachs Global Investment Research

November 5, 2013

United States

relative to Nexus and what customers are announced. Our analyst believes if Cisco is able
to significantly leap-frog competitors and the emerging white box ecosystem in terms of
raw performance, then Web 2.0 customers will likely seriously consider Insieme even if it
carries some premium.

Earnings (13-Nov): CSCO shares have moved an average of +/- 7% on the past eight
earnings events. CSCO shares have underperformed S&P500 by 7% over the past month
and we see the potential for the stock to mean revert on earnings release. Our analyst sees
the potential for this earnings reporting season to be more volatile than normal for the
enterprise networking sector, including Cisco.
On October 23, we recommended investors to buy CSCO straddles as options are
underestimating volatility on earnings on November 13 as well as the Insieme launch
on November 6. The straddle was recently $1.36 (stock $23.07) relative to our
recommendation to buy for $1.53 (stock $22.65). We recommend investors close out the
November $23 put options on the trade for $0.63 (2.7%, stock $23.07) while keeping on the
November $23 call options. We still see upside for the same reasons as before, but want to
reposition for optimal exposure to the earnings upside. Call buyers risk losing the premium
paid if the stock closes below the strike price on expiration.

Trade 4: Buy GWW calls ahead of analyst day on Nov 13


Despite historically stock-moving analyst day, GWW options prices have declined
dramatically since earnings on 16-Oct. We recommend buying GWW Nov 16 $270
calls for $2.65 (1.0%, stock $268.96)
We recommend investors buy GWW November $270 calls for $2.65 (1.0%, stock
$268.96) as options trade inexpensive ahead of a historically volatile analyst day. On
the past 11 analyst days on record, the stock averaged a +/-2% move on the day of the
event. Shares also have reacted positively to analyst days in 6 of those 11 events. Since
earnings on 16-October, 1-month implied volatility on the stock has declined 8 points to
18%. Current 1-month implied volatility is 2 points below the average level in the past year.
We believe the options market has overlooked the upcoming analyst day. Call buyers risk
losing their premium paid.

Trade 5: Upcoming analyst days in November


With more than two-thirds S&P 500 companies having reported Q3 earnings, we
believe investors should look forward to the next major catalysts on the single stock
level. We continue to highlight analyst days in November as potential sources of volatility.
Our long term study of analyzing over 3800+ analyst days shows the options market tends
to underestimate volatility on analyst days. Since 2002, buying calls 5 days prior to an
analyst day and closing 1 day after has returned an average profit of 23% (mid-market).

Among the trades we prefer to highlight, we have live trade recommendation on HAL,
MON, MCD, and GWW. Additionally, we recommend investors buy RVBD December
$16 calls for $0.63 (4.1%, stock $15.33), UAL December $36 calls for $1.67 (4.7%, stock
35.53) and SAP December $80 calls for $1.15 (1.5%, stock $77.78) to position for their
upcoming analyst days.
In exhibit 7 we highlight our top recommendations where options are pricing below
average volatility going into the event. We also highlight names where the analyst day is
being held at least a month after the last earnings event. Our study shows that buying calls
Goldman Sachs Global Investment Research

November 5, 2013

United States

for an event being held at least a month after earnings is 2X as profitable as a similar
strategy for an event held 5-10 days after earnings.
Exhibit 7: Top options buying opportunities for November analyst days
1 month implied volatility, recent prices for call options that capture the analyst day
Analyst
Day

Ticker

Company

ERIC
HAL
MON
WTW
SWI
WSO
AEGR
AMD
BC
DBD
IR
XRX
GWW
ALK
FFIV
MCD
GE
RVBD
UAL
GDOT
SAP
CBG
FHN
INTC
CYT

Ericsson (ADR)
Halliburton
Monsanto
Weight Watchers
SolarWinds
Watsco
Aegerion Pharma
Advanced Micro Devices
Brunswick
Diebold
Ingersoll-Rand
Xerox
W.W. Grainger
Alaska Air Group
F5 Networks
McDonald's
General Electric
Riverbed Tech
United Continental
Green Dot
SAP
CBRE Group
First Horizon National
Intel
Cytec Industries
average

6-Nov
6-Nov
6-Nov
6-Nov
7-Nov
8-Nov
8-Nov
11-Nov
12-Nov
12-Nov
12-Nov
12-Nov
13-Nov
14-Nov
14-Nov
14-Nov
15-Nov
18-Nov
19-Nov
20-Nov
20-Nov
21-Nov
21-Nov
21-Nov
22-Nov

Avg.
days since
Analyst day
last
move
earnings
13
1.7%
16
3.7%
35
2.3%
7
14.9%
9
2.8%
23
1.2%
9
2.8%
25
4.1%
19
2.5%
13
0.6%
25
2.1%
19
3.3%
28
1.9%
21
1.6%
22
1.9%
24
1.6%
28
1.8%
21
5.3%
26
2.2%
20
na
30
4.3%
23
0.8%
34
0.3%
37
1.3%
36
5.2%
23
2.9%

1-m %-ile
vol rank
24
25
21
32
34
21
59
52
32
23
21
24
18
28
33
11
16
41
37
39
19
27
22
17
20

15
34
49
33
33
31
38
13
12
46
28
29
26
43
39
1
32
32
44
31
1
24
6
4
8
26

last
price

strike

expiry cost ($) cost (%)

11.86
53.13
103.22
33.92
36.45
96.16
82.76
3.33
46.19
29.28
67.52
10.28
268.96
72.42
79.74
97.41
26.42
15.33
35.52
23.75
77.78
22.87
11.00
24.03
83.15

12.00
55.00
110.00
35.00
37.50
100.00
85.00
4.00
47.00
30.00
67.50
10.00
270.00
75.00
80.00
95.00
26.00
16.00
36.00
25.00
80.00
23.00
11.00
25.00
85.00

Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Nov-13
Dec-13
Dec-13
Dec-13
Dec-13
Dec-13
Dec-13
Dec-13
Dec-13

0.15
0.33
0.15
0.40
0.55
0.40
2.40
0.02
0.75
0.25
1.05
0.37
2.65
0.45
1.69
2.57
0.59
0.63
1.67
0.85
1.15
0.85
0.40
0.22
1.75

1.3
0.6
0.1
1.2
1.5
0.4
2.9
0.6
1.6
0.9
1.6
3.6
1.0
0.6
2.1
2.6
2.2
4.1
4.7
3.6
1.5
3.7
3.6
0.9
2.1
2.0

Source: Reuters, Goldman Sachs Global Investment Research.

Financial advisory disclosures


Goldman Sachs is acting as a financial advisor in connection with an announced strategic
matter involving the following companies or one of its affiliates: Ingersoll-rand Plc; Sears
Holdings Corporation.

Goldman Sachs Global Investment Research

November 5, 2013

United States

Disclosure Appendix
Reg AC
We, John Marshall and Katherine Fogertey, hereby certify that all of the views expressed in this report accurately reflect our personal views about the
subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly,
related to the specific recommendations or views expressed in this report.

Disclosures
Option Specific Disclosures
Price target methodology: Please refer to the analysts previously published research for methodology and risks associated with equity price
targets.
Pricing Disclosure: Option prices and volatility levels in this note are indicative only, and are based on our estimates of recent mid-market
levels(unless otherwise noted). All prices and levels exclude transaction costs unless otherwise stated.
General Options Risks The risks below and any other options risks mentioned in this research report pertain both to specific derivative trade
recommendations mentioned and to discussion of general opportunities and advantages of derivative strategies. Unless otherwise noted, options
strategies mentioned in this report may be a combination of the strategies below and therefore carry with them the risks of those strategies.
Buying Options - Investors who buy call (put) options risk loss of the entire premium paid if the underlying security finishes below (above) the
strike price at expiration. Investors who buy call or put spreads also risk a maximum loss of the premium paid. The maximum gain on a long call or
put spread is the difference between the strike prices, less the premium paid.
Selling Options - Investors who sell calls on securities they do not own risk unlimited loss of the security price less the strike price. Investors who
sell covered calls (sell calls while owning the underlying security) risk having to deliver the underlying security or pay the difference between the
security price and the strike price, depending on whether the option is settled by physical delivery or cash-settled. Investors who sell puts risk loss of
the strike price less the premium received for selling the put. Investors who sell put or call spreads risk a maximum loss of the difference between the
strikes less the premium received, while their maximum gain is the premium received.
For options settled by physical delivery, the above risks assume the options buyer or seller, buys or sells the resulting securities at the
settlement price on expiry.

Company-specific regulatory disclosures


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Distribution of ratings/investment banking relationships


Goldman Sachs Investment Research global coverage universe
Rating Distribution

Buy

Hold

Investment Banking Relationships

Sell

Buy

Hold

Sell

Global
31%
54%
15%
50%
42%
37%
As of October 1, 2013, Goldman Sachs Global Investment Research had investment ratings on 3,570 equity securities. Goldman Sachs assigns stocks
as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell
for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.

Price target and rating history chart(s)


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compendium can be found in the latest relevant published research

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Ratings, coverage groups and views and related definitions


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