Financial services leader Morgan Stanley (MS) is trading flat over the past year, as the banking sector has been under pressure from higher interest rates and slow stock trading. One trader is betting shares will take a hit in the coming months.
That’s based on the December 15 $60 puts. With 58 days until expiration, 9,965 contracts traded compared to a prior open interest of 162, for a 62-fold rise in volume on the trade. The buyer of the puts paid $0.27.
Morgan Stanley shares recently traded for about $78, so the stock would need to drop $18, or nearly 27 percent, for the option to move in-the-money. That would also mean shares break far under their current 52-week low of $74.67.
The company has seen earnings drop 12 percent in the past year, amid a slowdown in Wall Street activity and brokerage fees. But overall revenues are up 2 percent. And shares trade at just 11 times forward earnings.
Action to take: Investors may want to keep an eye on shares in the coming weeks. Once the current downtrend ends, the stock should be posed to rocket higher. At current prices, Morgan Stanley yields 4.3 percent.
For traders, the December puts likely have some short-term upside, given the downtrend in shares. Traders can likely make high double-digit returns on a further drop, thanks to the low price on the options.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.