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How to Play the Goldman Sachs News

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Morgan Stanley is likely to be the biggest winner, but also look at Google, Apple, and Baidu.

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Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial).

Market corrections come out of left field on unforeseen events like today's news on Goldman Sachs (GS).

As for Goldman Sachs, I briefly looked at buying some OTM puts but they were too juiced already. Also, I've been a Goldman Sachs bull. But I would view this news as something similar to an accounting problem and I generally steer clear of that sort of issue no matter the company.

In fact, the only way I would enter a long on Goldman Sachs in the near term would be a bull put spread with defined downside. If the stock were to get to $135 or lower I'd possibly consider going long the common, but this is certainly disturbing news.

However, the biggest winner here will likely be Morgan Stanley (MS). My lone finance position at the moment. And I will add on any material selling in sympathy. It's down about 5% and another 5% will get me much more active. This stock is already insanely cheap on a relative basis and it's getting even cheaper on this news.

As Buzz readers know, I've been largely out of finance stocks for a couple weeks while fearing a renewed mark-to-market push from FASB and I didn't want to stand in front of a shock to the finance space. So that position today is clearly an example of being lucky rather than good -- as this Goldman Sachs news is clearly a shock of a different sort to the finance sector.

Here's how I'm playing and I've articulated some of this already.

1. Buy Google (GOOG)
2. Add back Apple (AAPL) exposure in $230s
3. Buy Google
4. Add Morgan Stanley another 5% lower than current print. This could really ignite to upside within days to weeks.
5. Short Baidu (BIDU)
6. Buy UltraShort QQQ ProShares (QID)
7. Add more solars, but waiting until next Tuesday/Wednesday
8. Review all the Comm chip plays mid next week
9. Review all regional bank plays mid next week
10. Did I say buy Google yet?!

BONUS: I'm also looking at some May GS 155 puts if they cheapen up a couple points.


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Position in GOOG, BIDU, MS, QID, AAPL, and various chip names

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