This page has been archived and commenting is disabled.

Goldman's Top Vol Trades For 2011

Tyler Durden's picture


Goldman's Krag Gregory has proposed several interesting vol ideas all of which, however, are predicated by Goldman's attempt to merely leverage (clients) into the company's bullish outlook on the economy and markets. To wit: "Our US Portfolio Strategy team’s SPX target of 1500 coupled with high 1y skew and low rates biases us to strategies that sell expensive puts to fund upside." The eight trades specifically are: Trade #1: Sell S&P 500 Dec-11 variance at 22.8; Trade #2: Sell RUT Dec-11 variance at 30; Trade #3: Sell S&P 500 Apr-11/Dec-11 forward variance at 24.2; Trade #4: Risk reversals. Buy a Dec-11 S&P 500 104.6% call; Sell a 90% put to fund; Trade #5: Knock-in risk reversals. Buy a Dec-11 S&P 500 102.7% call. Sell a 95% put with a 82% (1060) knock-in to fund; Trade #6: 1x2 Call spread overlay. Buy Mar-11 SPX 100%/104.4% 1x2 call spreads for 1.4%; Trade #7: Buy Dec-11 SPX 100%/116% 1x2 call spread; sell a 8.5% OTM put to fund as a standalone options strategy; Trade #8: Calendar spread as a hedge. Buy Mar-11 SPX ATM put, sell Dec-11 82% put to fund.

Specifically, GS divides its trade recommendations into two key categories: variance trades, which are a repeat of the firm's top trade for 2010, that ended up costing Goldman serious P&L in Q2 when the market plunged, and directional trades:

Top US variance trades for 2011

Our forecast for lower realized vol in 2011 coupled with a steep term structure biases us toward short 1y variance trades which benefit from a roll down the curve. Elevated 1y skew means that variance is trading rich relative to ATM implieds. We like selling Dec-11 variance on SPX and RUT. Steep term structure environments also imply high forward volatility and we like selling forward variance on S&P 500 and settling on realized.

Top S&P 500 directional trades

Our US Portfolio Strategy team’s SPX target of 1500 coupled with high 1y skew and low rates biases us to strategies that sell  expensive puts to fund upside. As a result, risk reversals are our preferred strategy for gaining upside exposure. Managers looking for levered short-term upside exposure may consider 1x2 call spread overlays. As our preferred hedge, we like selling SPX Dec-11 18% OTM puts to fund Mar-11 ATM puts as current term structure is near decade highs.

The overarching theme behind all the trades is the firm's expectation for i) a declined in realized vol to 15 by the end of 2011, and ii) the S&P hitting the firm's revised forecast of 1,500. Since both of these appear increasingly improbably now that the inflation genie is finally out of the bottle, and since Goldman's prop traders are selling these trades to clients, it is as usual best to be positioned on the "other" side.

Goldman's justification:

The combination of stronger US growth, moderate inflation, and accommodative monetary policy should be supportive of risky assets and lower realized volatility in 2011. Our forecast for S&P 500 realized volatility is 15 for 2011 and our US Portfolio Strategy team has a year-end S&P 500 target of 1500. In the options market, S&P 500 one-year skew remains on par with 2008-2009 crisis levels, the term structure is near its steepest level on record, and 1y variance levels are predicting realized vol over 2011 will be 6 points higher than realized volatility in 2010. We highlight ways to use the existing anomalies in the options market to position for directional upside and a decline in volatility in 2011.

Full report:



- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 01/18/2011 - 22:19 | Link to Comment Thomas
Thomas's picture

Crock trade.

Tue, 01/18/2011 - 22:26 | Link to Comment Cursive
Cursive's picture

Yeah.  Double reverse psychology.  Vol gonna explode.  Can't contain it.

Tue, 01/18/2011 - 22:20 | Link to Comment pedro barbosa
pedro barbosa's picture

I am the vol seller and GS the vol buyer. Very lucid.

Tue, 01/18/2011 - 22:27 | Link to Comment RobotTrader
RobotTrader's picture

Once again, these Goldman clowns charge millions for this worthless advice on buying, selling, hedging this, that, and the other.

Who the hell puts on these complex trades and actually wins?


It is really no different than the sports wagering junkies gunning all kinds of parlays, teasers, and futures which are priced such that it is nearly impossible to win.

No wonder Wall St. is full of bodybags of hot shots trying to trade the untradeable.

Sheeh, just sticking to S & P 500 stocks is enough action by itself.  Why bother with all this other nonsense?


Wed, 01/19/2011 - 00:10 | Link to Comment rocker
rocker's picture

You sound right on to me Robo.  Why even do it ???  Do it without the hedge.  We are Zero Hedge, right ???

Wed, 01/19/2011 - 09:02 | Link to Comment Minyan Vince
Minyan Vince's picture

I do agree with that RT...pretty tough to pay attention to all those moving parts where most can't get a true handle on plain vanilla stocks

Wed, 01/19/2011 - 09:15 | Link to Comment anarchitect
anarchitect's picture

Exactly. Since Jan 1, 2002, I have a CAGR of 18% but neither a clue wtf this PhD is yapping about nor any desire to learn.

Tue, 01/18/2011 - 22:29 | Link to Comment Misean
Misean's picture

Why does anybody assume that Goldman Sucks is going to anything but loot them?

Tue, 01/18/2011 - 22:42 | Link to Comment Salinger
Salinger's picture



Tue, 01/18/2011 - 22:48 | Link to Comment buzzsaw99
buzzsaw99's picture

I'll take thirty million of each!!



Tue, 01/18/2011 - 22:48 | Link to Comment knukles
knukles's picture

Is there anyone left who even listens to this crap anymore?

Wed, 01/19/2011 - 03:29 | Link to Comment Jasper M
Jasper M's picture

So me of us may listen, that we may trade contrarily.

SERiously, this all looks like a fanTastic way to lose money. SELLIng S&P Puts, are you Kidding me??

Tue, 01/18/2011 - 22:52 | Link to Comment SDRII
SDRII's picture

isnt gs vix call 15-25 range?

Tue, 01/18/2011 - 22:59 | Link to Comment knukles
knukles's picture

Since vol is the same as fluctuation and the Chinese PM is in town, I relate the following experience to enhanced world peace, love, international cooperation, respect for others, humility and understanding:

When I was at my bank today there was a short line with an Asian lady in front of me trying to exchange yen for dollars.  It was obvious she was more than a little irritated . .

She asked the teller; "Why it change? Yesterday, I get two hunat dolla fo yen. Today I only get hunateighty? Why it change?" 
The teller shrugged his shoulders and said; "Fluctuations."
The Asian lady responds indignantly; "Fluc you white people too"   

Wed, 01/19/2011 - 00:23 | Link to Comment goldmiddelfinger
goldmiddelfinger's picture

Intellectual diarrhea offered as trades by Squidward? Let me think...hmmm, OK, no.


Wed, 01/19/2011 - 00:59 | Link to Comment loup garou
loup garou's picture

Shame on you cynics.

Out of the goodness of their hearts, Abby J. (x + 20%) and Co. have taken the time and effort to bestow their keen insight and profound wisdom onto the investing public.  This is strictly objective advice, certainly not an attempt to influence or persuade. Their generosity is overwhelming. (I’m getting misty.) We should all be extremely grateful.

Surely, one can count on considerable profits from these suggested trades. (Don’t call me Shirley.) Otherwise, Goldman’s reputation no doubt would be negatively impacted,  and their Holy mission imperiled.

Wed, 01/19/2011 - 05:06 | Link to Comment JW n FL
JW n FL's picture


Wed, 01/19/2011 - 05:11 | Link to Comment JW n FL
JW n FL's picture

on a more serious note... all of these trades hold water... thusly if you could get people to pile in... to either side, or just sell tickets or both...


Wed, 01/19/2011 - 05:14 | Link to Comment JW n FL
JW n FL's picture

"inflation genie is finally out of the bottle" earnings related to inflation will not be reported until absolutely needed... bonus bonanza part duex may now begin!

Wed, 01/19/2011 - 05:16 | Link to Comment JW n FL
JW n FL's picture


Wed, 01/19/2011 - 05:52 | Link to Comment thegreekT
thegreekT's picture

So letr me get this right... These guys recommend 8 different trades that are effectively quite similar.

What happens if vol goes up while S&P falls? I get hosed...

Wed, 01/19/2011 - 08:09 | Link to Comment JW n FL
JW n FL's picture

not if you are them...

Wed, 01/19/2011 - 13:09 | Link to Comment Plainview
Plainview's picture

exactly, they are the same fucking trade;

I'm interested in anything that isn't 95% correlated with "The Bernanke Put", this ain't that.

Wed, 01/19/2011 - 10:11 | Link to Comment broogy
broogy's picture

sounds like they share the same opinion with SocGen...

Do NOT follow this link or you will be banned from the site!