Shares of investment bank Morgan Stanley (MS) have slid nearly 15 percent in the past year. One trader is betting that shares will recover in the next 18 months.
That’s based on the January 2024 $85 calls. With 554 days until expiration, 2,000 contracts traded hands at a 42-fold rise in volume on the trade. The buyer of the calls paid about $4.10 to get into the trade.
Shares recently traded just under $77, so the stock would need to rise about $8, or just over 10 percent, in order for the options to move in-the-money. That’s still well under the stock’s 52-week high near $110 per share.
The bank is feeling the slowdown in M&A activity and rising interest rates, with revenue down 6 percent over the past year and earnings down 11 percent. However, shares are going for under 10 times earnings and the company has a 25 percent profit margin.
Action to take: Investors may like shares here near the stock’s 52-week low. At current prices, shares yield about 3.6 percent. The bank is in a strong financial position, and will likely weather this economic downturn and continue higher in time.
For traders, the January 2024 calls, while far out time-wise, are inexpensive for how much time they have to play out. Traders may like to look at buying the option on a down day and selling on a rally for some quick, low double-digit gains in addition to buying with a longer-term timeframe in mind.
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.