How to Profit From the Coming Goldman Sachs Rally Using Options

NEW YORK (TheStreet) -- Goldman Sachs (GS), as I read the chart, is poised to attempt to break out to new multiyear highs.

Goldman Sachs shares are trading at a modest price-to-earnings ratio of just 11, while the company is possibly growing earnings at a better clip than analysts are forecasting. That means Goldman Sachs is in a good fundamental position now to support that technical breakout potential.

Pretty much the entire financial sector is rewarded when interest rates begin to rise. Better yet, the brokerage houses tend to perform the best. My interest rate bias is for higher rates at some point within the next two quarters.

Source: Yahoo Finance

The trade tactic I prefer now for GS is the bullishly biased vertical call spread, expiring in June. This is a very high-risk trade due to the short time to expiry, as well as buying an out-of-the-money spread. Thus, if in any doubt -- stay out!

Trades: Buy to open GS Jun 205 calls and sell to open GS Jun 210 calls for a debit of $1.35.

The suggested target to close for a gain is a bid of $1.75, and the suggested target to stop out is a bid of $0.95.

As always, this is a guideline and you should always stick to your trading plan and what's best for your risk/reward tolerance.

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Skip Raschke writes regularly for Options Profits. You can get his trades first and interact with him there with a free trial.

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