Shares in Goldman Sachs are back above $100.00 this morning after closing below that level on Monday and Tuesday, the stockís first run-ins with double-digit prices since January. Sharp 38.0% gains in the stock in the first quarter of 2012 evaporated in April and the first couple of weeks in May. Some May $110 strike call buyers who may have been aiming to get in at the bottom of the recent selloff were burned quite severely in the 1.5 month slump, with the $110 strike contracts nearing expiration and premium on the far out-of-the-money calls now near zero. Open interest in the $110 strike calls suggests some portion of the 13,988 positions were purchased at the end of April for an average premium of $5.98 per contract.

 

The continued bearish movement in the price of the underlying shares in May pulled down the probability $110 strike calls will land in-the-money at expiration, thus slashing the value of long positions. Call options purchased for $5.98 on average just a couple of weeks ago, are now printing a bid/ask of $0.01/$0.04 apiece. Hope springs eternal, however, and the purchase of a large block of 8,872 $110 strike calls for $0.07 apiece this morning is a far cheaper bet on near term upside, which may payoff if shares in Goldman can extend gains in the next two trading sessions. Another up-day tomorrow or Friday could lift premium on the options to provide an opportunity to sell the contracts at an advantageous price prior to expiration.

 

The calls will of course expire worthless at expiration this week should shares fail to rally more than 9.75% to top $110.00.  Shares in Goldman Sachs are currently off their highs of the session, trading up 0.35% on the day at $100.22 as of 12:15 p.m. in New York.

 

 

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