Fear and volatility returned to the U.S. stock market in a big way over the past several sessions, but concerns over bond yields, trade policy and other factors aren’t spread evenly across the economy. Instead, there are a few names that investors see as particularly risky.
According to Goldman Sachs, trends in options investing suggest that four companies are the ones that options investors are the “most worried about” going into the end of the year: Google parent Alphabet Inc. GOOGL, -4.63% GOOG, -5.06% Nvidia Corp NVDA, -7.48% Broadcom Inc. AVGO, -5.26% and Chipotle Mexican Grill Inc. CMG, -2.88%
The investment bank looked at a measure known as volatility skew for the stock market and found that it was near its highest for these four. Skew refers to how options on the same asset, expiring at the same time, can have different strike prices. In these cases, investors are bearishly positioned to an extreme degree.
“Skew is at highs” for these four, Goldman wrote in a research report, “suggesting investors are using options to hedge exposures or express negative directional views.” For Chipotle, three-month normalized skew is in its 99th percentile, “suggesting option investors are worried about shares trading lower into year-end.”
The skew for Nvidia, whose stock recently hit a record, is also in its 99th percentile, while it is in the 100th percentile for Alphabet and Broadcom, according to Goldman’s data.
The quartet includes two stocks that have performed extremely well thus far this year. Nvidia is up about 27% in 2018, while Chipotle has surged 50%. Alphabet, one of the so-called FAANG stocks that have lifted markets for much of the year, is up 3.7%. That’s slightly below the 4.2% gain of the S&P 500 SPX, -3.29% although it has outperformed for much of the year. (Alphabet has seen some of the biggest weakness in the recent selloff; it has dropped 6.5% thus far this week.) Broadcom’s stock is down 9.8% in 2018.
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Goldman also named five stocks that the options market is indicating should be especially volatile over the rest of 2018: Tesla Inc. TSLA, -2.25% ACADIA Pharmaceuticals Inc. ACAD, -4.35% Hertz Global Holdings Inc. HTZ, -5.45% Infinera Corp. INFN, -1.69% and FireEye Inc. FEYE, -2.64% While these companies have already seen extreme moves — an average of 14%, whether up or down, per Goldman — the options market is expecting them to move an additional 23% over the coming four months.
Acadia “shares are down 30% year to date, however the options market is pricing in the potential for shares to move another +/-36% into options year-end,” the firm wrote, referring to January 2019 expiration. “Meanwhile, FireEye shares are up 18% year-to-date, yet the options market is positioning for shares to move +/-19% into year-end.”
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