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Option Trends: Goldman Sachs Group Inc and Morgan Stanley

Options traders are taking slightly different paths on outperformers Goldman Sachs Group Inc and Morgan Stanley

by 8/26/2014 11:10:59 AM
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Options traders have been targeting financial giants Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS). Over the past few months, however, bullish speculation has been much stronger toward MS, while betting on GS is tilted in a slightly bearish direction.

Goldman Sachs Group Inc (NYSE:GS)

During the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly two GS calls for every put. Nevertheless, the resultant 50-day call/put volume ratio of 1.83 ranks in just the 46th percentile of its annual range. In other words, relative to data from the past 52 weeks, traders have shown slightly less interest than usual in Goldman Sachs calls over the past few months.

More recently, calls were exchanged at three times the usual rate on Monday, and outstripped puts by a greater than 4-to-1 margin. However, some of these call traders actually expressed skepticism, with evidence of sell-to-open activity at the overhead September 180 strike.

This collective doubt is confounding, considering Goldman Sachs Group Inc's recent track record on the charts. Specifically, since hitting a year-to-date low of $151.65 in April, the shares have notched a series of higher highs and lows, adding 17.7% to trade at $178.49. Yesterday, in fact, the stock tacked on 1.4%, after reaching a settlement with the Federal Housing Finance Agency.

These strong technicals are starting to be recognized on the Street, as MKM Partners earlier initiated coverage on GS with a "buy" rating. Additional bullish notes could be forthcoming, too, since 12 of 14 covering analysts have given the equity a "hold" or worse rating.

Morgan Stanley (NYSE:MS)

By contrast, traders on the ISE, CBOE, and PHLX have been extremely bullish toward MS. Specifically, the equity's 50-day call/put volume ratio of 2.68 across this trio of exchanges is higher than 84% of all readings from the past year. Stated differently, speculators have scooped up long calls (relative to long puts) with greater rapidity just 16% of the time in the previous 12 months.

Such enthusiasm isn't necessarily unwarranted. After all, MS has added 35.5% on a year-over-year basis to hover near $34.48, and just yesterday, the shares touched a fresh four-year high of $34.57.

Morgan Stanley could also benefit from analyst upgrades -- though on the Street, as in the options pits, the general attitude toward the stock is bullish when compared to GS' sentiment backdrop. Specifically, MS has received seven "strong buy" endorsements, versus seven tepid "hold" recommendations.


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