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Morgan Stanley Options Active As JPM Errs

Posted on the 11 May 2012 by Phil's Stock World @philstockworld

Today’s tickers: MS, EWZ & MDR

MS - Morgan Stanley – JPMorgan’s trading loss troubles, which brought the shares down nearly 10.0% this morning, weighed heavily on Morgan Stanley as well. Shares in the financial services firm earlier fell 5.8% to an intraday and four-month low of $14.70. Options traders expecting MS to bounce back next week picked up cheapened upside exposure in the form of May expiry calls. The bullish plays may be winning propositions in the event of a near term recovery in the price of the underlying. Traders purchased around 2,100 of the May $14 strike calls for an average premium of $1.05 apiece, and picked up more than 4,800 calls at the higher May $15 strike at an average premium of $0.36 each. Premiums on the $14 and $15 strike calls have moved higher during the session as shares in the name recovered off the morning lows. Strategists holding in-the-money contracts with one week remaining to expiration face average breakeven prices of $15.05 and $15.36, respectively.

EWZ - iShares MSCI Brazil Index Fund – Shares in the EWZ, currently up 0.75% on the day at $57.53, may extend gains in the near term by the looks of bullish positioning in the June expiry options this morning. Call options on the fund are most active out at the June $60 strike, where more than 36,000 contracts changed hands against open interest of 9,244 positions. Most of the calls appear to have been purchased for an average premium of $0.80 apiece. The single largest stake, a block of 29,707 calls, was picked up just before 11:00 a.m. ET this morning. Call buyers stand ready to profit at expiration next month in the event that shares in the Brazil ETF rally 5.7% to top the average breakeven price of $60.80. Shares in the ETF are down 2.6% year-to-date, and have lost more than 18.0% of their value since reaching the March 2, 2012, six-month high of $70.74.

MDR - McDermott International, Inc. – The Houston, Texas-based offshore oil and gas contractor’s shares increased as much as 17.2% to $11.59 today after the company reported better-than-expected first-quarter earnings. Shares are currently at their highest since the start of the month on the earnings report, an upgrade to buy from hold at BB&T Capital Markets and reports the company may start buying back stock, but it looks like at least one options player is wary the gains may be temporary. A burst of put buying in the front month kicked in at the start of the session, with some 11,000 contracts in play at the $11 strike against open interest of 2,488 positions. Most of the puts appear to have been purchased at a premium of $0.35 apiece. Put buyers make money if shares in McDermott International decline 5.5% from the current price of $11.27 to breach the breakeven price of $10.65 by expiration next week.


Caitlin Duffy
Equity Options Analyst

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