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- Goldman Sachs strategist Vishal Vivek is telling investors how to maximize their profits around state and federal elections.
- Vivek says that some stocks might endure increased volatility because of ballot measures that could have major effects on their operations.
- He lays out 17 options strategies for seven different trades rather than trying to simply pick the individual stocks that could have the most upside based on broad themes.
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Deep dives on how to play the presidential election are piling up on Wall Street, but Goldman Sachs is warning investors that there are a lot of other votes worth paying attention to.
Equity Derivatives Associate Vishal Vivek says there could be a lot of volatility around state-level initiatives and regulations, and they could have big effects on how some major US companies do business in the years ahead.
So Vivek isn’t looking for the biggest potential winners based on the presidential ballot or the makeup of Congress. Instead, he’s targeting the stocks that might be the most volatile around election time because the companies might have a lot at stake.
“We’re most focused on identifying names with stock-specific drivers of volatility, as opposed to broad drivers such as potential weakness driven by changes in corporate taxes,” he said in a recent note. “State-level propositions included on the November ballots are important sources of volatility, that are likely under the radar of investors.”
What follows is a collection of seven key votes and themes that affect a total of 17 different “Buy”-rated companies. Vivek says each of them could see increased volatility based on the outcome of the presidential election or state ballot measures and tells investors how to trade each using call options.
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1. Solar Power
Companies: First Solar (FSLR), SunRun (RUN), SunPower (SPWR)
Sector: Information technology
Catalyst: “Fundamentals for the clean energy sector have held up over the past few years despite minimal federal support. Preliminary plans laid out by Joe Biden have the potential add a material boost to the pace and scale of renewable energy adoption.”
Trade 1: Buy FSLR Nov-20 monthly $57.50 calls
Trade 2: Buy RUN Nov-20 monthly $28 calls
Trade 3: Buy SPWR Dec-20 monthly $9 calls
Source: Goldman Sachs
2. Energy
Companies: Concho Resources (CXO), EOG Resources (EOG)
Sector: Energy
Catalyst: “Potential risk of regulatory tightening of oil and gas drilling on federal land; specific focus on New Mexico given a portion of Permian Basin is produced on federal land.”
Trade 1: Buy CXO Dec-20 monthly $50 calls
Trade 2: Buy EOG Jan-21 monthly $47.50 calls
Source: Goldman Sachs
3. Pinnacle West Capital
Ticker: PNW
Sector: Utilities
Catalyst: “Election to the utility commission in AZ is part of the larger November election. A change in the commission member make-up is a material catalyst.”
Trade: Buy Pinnacle West Capital (PNW) Jan-21 monthly $75 calls
Source: Goldman Sachs
4. Health Insurers
Companies: Humana (HUM), United Healthcare (UNH), Cigna (CI)
Sector: Healthcare
Catalyst: “There may be a more favorable environment for Commercial under President Trump and a more favorable environment for exchanges, [Medicaid Managed Care] and [Medicare Advantage] under Joe Biden, mostly through enrollment expansion mechanisms.”
Trade 1: Buy HUM Nov-20 monthly $390 calls
Trade 2: Buy UNH Dec-20 monthly $300 calls
Trader 3: Buy CI Jan-21 monthly $180 calls
Source: Goldman Sachs
5. Drugmakers
Companies: Regeneron Pharmaceuticals (REGN), Bristol Myers Squibb (BMY), Johnson & Johnson (JNJ), Amgen (AMGN), Eli Lilly (LLY)
Sector: Healthcare
Catalyst: “The pandemic has shifted legislative focus towards easing the path to get a vaccine, rather than trying to pass big bills to cut drug prices. But how long this “goodwill” lingers is an outstanding question.”
Trade 1: Buy REGN Nov-20 monthly $640 calls
Trade 2: Buy BMY Nov-20 monthly $60 calls
Trade 3: Buy JNJ Dec-20 monthly $145 calls
Trade 4: Buy AMG Jan-21 monthly $250 calls
Trade 5: Buy LLY Jan-21 monthly $170 calls
Source: Goldman Sachs
6. Kratos Defense
Ticker: KTOS
Sector: Industrials
Catalyst: “President Trump has been supportive of Defense spend, and has increased the budged through his first term, while Joe Biden has spoken about efficient spending and moving investments out of legacy programs into cyber, unmanned, space and AI.”
Trade: Buy KTOS Nov-20 monthly $15 calls
Source: Goldman Sachs
7. Ride-hailing
Companies: Uber (UBER), Lyft (LYFT)
Sector: Consumer discretionary
Catalyst: “A proposition to change employment classification rules to determine whether app-based transportation and delivery drivers are employees or independent contractors in on the ballot in California. Potential for impact on the firms’ business model.”
Trade 1: Buy UBER Dec-20 monthly $34 calls
Trade 2: Buy LYFT Jan-21 monthly $32.50 calls
Source: Goldman Sachs
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