6 Cheap Options Trades on Expensive Stocks

• «

Goldman Sachs (GS)

By Nick Atkeson and Andrew Houghton

The Goldman Sachs (GS) guys are smart. The have made money in some of the most difficult markets we have ever seen. They also have a lot less competition in the wake of the financial crisis and the elimination of Bear Sterns, Lehmann Brothers and Merrill Lynch. GS has become the go-to bank for both large equity and debt financings.

Although the stock is on a tear and we believe it could go higher, we want to act more like Warren Buffett than Speed Racer. We believe, over the long-term, value is more sustainable than momentum. As a result, we recommend selling the GS Jan 2012 100 Puts (WSDMT) for about $6.35. If you are put the stock at $100, you will take ownership at about $10 more than where Buffett started buying. If the stock stays above $100, you will keep the premium as pure profit.

For more great trading ideas, see 6 Top-Rated Stocks to Buy Now.