Morgan Stanley Options (MS): Unusual Trading Activity

| August 6, 2012 | 0 Comments

MS OptionsOptions in once troubled Morgan Stanley (MS) showed heavy activity before the close last Friday. 

And today is no different. 

Morgan Stanley put options are on the move.

MS has traded in a wide range since the beginning of June.  And after moving straight down during most of July, the stock’s now on its way back up.  

What’s more, the broad market is up today, and MS is following suit.  The stock’s adding another 3% this morning at $14.13 a share and climbing.  

Here’s the kicker…

As a result, option traders are acting like kids in a candy store.  They started selling puts on the financial services behemoth as soon as the bell rang early Friday morning.

They clearly don’t want to be late to a potential market rally party!

Option traders have their eyes on one particular strike.  Specifically, the MS October $12 put options.  Friday before the close, an option trader came in and sold this strike over 10,000 times.  Well above the normal volume.

According to our tracking system, the average price these put contracts were sold for was $0.45 a piece.  As a result, this trader brought in a total of $450,000 in cash.

Here’s the important point about these option purchases to remember.  As long as MS stays above $12 a share by October expiration, this trader’s going to reap a huge windfall. 

In addition, we’re seeing heavy put selling spread across multiple strikes, not only the October $12 strikes.  That’s a good sign sentiment is improving in this name.

In other words, the broad based buying shows that multiple traders have the same feeling about the stock’s upside potential.

So why is Morgan Stanley in the spotlight?

Now, if you don’t already know, Morgan Stanley is a global investment bank with a history that can be traced back to 1924.

The company has institutional securities, wealth management, and asset management segments and more than 60,000 employees. The company derives about half its revenue from overseas. 

And with global growth improving, this could be a good situation for MS moving forward.

So, what’s behind this sudden burst in Morgan Stanley option activity? 

I believe it’s primarily a combination of two factors… the banking industry getting beaten down so heavily in May and recent evidence showing the European situation appears to be improving.

In other words, MS shares appear cheap here, and the company is now recapitalized and refocused under new management. 

It’s now one of the surviving standalone investment banks.  And this should help the company gain market share worldwide.

But these aren’t the only reasons…

In addition, gradual increases in asset prices and interest rates should have a positive effect on the company’s asset management and wealth management segments.  This will help borrowing and lending become more favorable.

And finally, since MS is one of the largest investment companies worldwide, it’s not as dependent on trading revenue.  Less reliance on trading revenue may allow the firm to weather regulatory changes better than its peers.

Bottom line…

It’s obvious a number of option traders think it’s time for Morgan Stanley to break its recent down trend and move to the upside. 

What do you think?  Are these option traders correct?

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Safe Trading,

Marcus Haber

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.