Goldman Suggests Buying Tech Options

Cisco Systems (CSCO) and Hewlett-Packard (HPQ) options may be worth purchasing after contract prices fell to their cheapest levels in five years, according to Goldman Sachs Group. Implied volatility, which is one of the factors affecting the options’ premiums, are at their lowest levels since 2003 when compared to the S&P 500. Experts believe that the stronger dollar value and slower global GDP growth may provide catalysts for higher volatility at the sector level.

Experts suggest that investors look at purchasing bullish call options on large technology companies, like IBM (IBM) and Oracle (ORCL), because they are “best positioned in the current environment”. Meanwhile, analysts at Goldman recommended buying bearish put options on smaller companies whose growth may slow as corporations cut technology spending. These companies could include those like Juniper Networks (JNPR) and others.

Overall, technology spending is expected to decline this year, which means larger companies that can realize economies of scale. The primary catalyst behind this decline in spending is due to an increase in the dollar’s value, which could make exports more expensive in the future. The bet Goldman favors is that this will simply increase the volatility in the sector, which will make the option premiums rise. And this represents an opportunity for investors to profit.

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