Wall Street loves a good turnaround story. In the banking sector, Goldman has been lagging behind peers like JPMorgan Chase & Co. (NYSE: JPM) and Bank of America Corp. (NYSE: BAC) for most of this year.
However, Money Morning Chief Investment Strategist Keith Fitz-Gerald sees this as a classic turnaround play.
The good news is, Wall Street doesn't see it.... yet.
When it does, there are strong odds Goldman will catch up to the others, giving investors a great opportunity for quick profits. In fact, we've found a way you can double your money.
The question is why will Goldman make such a move? Fitz-Gerald likes the company's changes to its leadership ranks. It is one of those catalysts that can get a stock's juices flowing.
And he recently outlined several additional catalysts:
1 - The firm's new CEO, David Solomon, takes over Sept. 30. He has broad experience on Wall Street with a strong path to top leadership. His bold style should give Goldman the swift kick it needs to get back on top of the field.
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2 - Solomon named Stephen Scherr and CFO, John Waldron as president, and Tim O'Neill as its vice chair. A well-rounded and handpicked team will soon be in place.
As Fitz-Gerald noted, these and other moves suggest the new boss has three priorities: 1) further expanding into consumer banking, 2) pushing deeper into commercial banking, and 3) expanding Goldman's client "footprint."
It's a big change from Goldman's trading-centric culture - a relic of the Gordon Gekko-inspired 1908s. The shift to relationship-centric businesses could be worth billions to the bottom line.
And with this strategy, Fitz-Gerald thinks you can double your money on GS within the next two months...
How to Double Your Money on Goldman's Resurgence
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Of course, an investor could just buy shares of Goldman Sachs and wait. But at a price of $227.74, there is not a lot of bang for the buck. Fitz-Gerald thinks the stock can reach its old high at $275.31 and possibly make it to the $300 per share level next year.
Nobody would mind making 31.7% on that trade, but you would have to tie up your money for months while you wait.
But there is a much better way to play, and it could double your money - that's a 100% profit - in much less time using options.
Don't worry, this is not a high-risk move. The options play Fitz-Gerald has in mind is a hedged strategy that manages risk while profiting from the underlying stock's gains.
The strategy is called a "vertical call spread," and it is easy to do.
The idea is to buy a call option on Goldman Sachs stock and sell a different call option to help pay for it.
They are called "vertical" because the two options have the same expiration date but different strike prices. If you look them up on an options table, they are arranged in a vertical column, hence the name.
In a nutshell, you simultaneously buy one call option with a strike price near the stock's current price and sell another option with a higher strike. The total cost of the trade would be less that just buying the lower strike call by itself.
Of course, nothing is for free. You will give up some profit potential, should the underlying stock skyrocket. But it is a great strategy to use if you think the underlying stock will make a modest run higher.
Keith recommends buying the GS Nov. 16, 2018 $230 Call (GS181116C00230000) and selling the GS Nov. 16, 2018 $235 Call (GS181116C00235000) options. Your profit would be strike price ($5.00 per contract) minus your cost.
In recent trading, the $230 call traded at $6.35 and the $235 call traded at $4.22. That means the cost of the trade would be $6.35 − $4.22 = $2.13 ($213 per options spread contract).
Since the difference between the two strikes is $5.00, your return would be 135% - or more than double your money by the Nov. 16 expiration date.
If things don't go as planned and Goldman stock falls, don't forget to have an "uncle" point. Close the trade at a loss if the spread loses 50% or trades as low as $1.07.
It may sound like a big hit, but it would be a lot larger if you had your money in the underlying stock, instead.
Vertical spreads limit your risk because they cost less than buying outright call options, but they still let you bank fast profits if the Goldman shares rise in value. Given all the good news in the company these days, the odds are with you.
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