Earnings History Favors Morgan Stanley, American Express Options Bears

Morgan Stanley and American Express stocks have historically struggled following earnings

Apr 18, 2017 at 2:18 PM
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Bank earnings have been in focus lately, and financial firms will continue to dominate the conversation tomorrow. Specifically, investment bank Morgan Stanley (NYSE:MS) is scheduled to report earnings Wednesday morning, while credit card stock American Express Company (NYSE:AXP) will tell all after the close. Below, we'll take a closer look at what options traders are expecting from the shares after MS earnings and AXP earnings.

Morgan Stanley Options Traders Target Weekly Puts

Options traders have been divided toward toward Morgan Stanley stock. The bank's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio is near even, at 0.98 -- meaning puts and calls have been bought to open at roughly identical rates in recent weeks.

Within that same time span, the most active MS option by a mile is the weekly 4/28 40-strike put, with about 28,200 contracts added. Whether these positions were bought or sold is unclear. For put buyers, the goal is for MS stock to breach $40 by next Friday's close, when the series expires; for sellers, the expectation is for the round-number level to serve as support over the next two weeks.

History seems to be on the side of the bears. In the session following five of the past eight Morgan Stanley earnings reports, the stock has posted a negative return. A repeat performance would continue a recent trend for the shares, which have turned lower since seeing the Trump rally peter out north of $47 in early March. At last check, MS stock was down 0.5% at $41.29.

American Express Options Traders Turn Bearish Ahead of Earnings

Options traders have been even more skeptical toward American Express stock. During the past two weeks, speculators have bought to open 1.80 puts for every call -- a ratio registering in the top one-third of all readings from the past 12 months. Amid this rush toward puts over calls, the in-the-money July 80 put has experienced the largest open interest increase over the last 10 trading days, adding more than 5,000 contracts.

Further underscoring this bearish bias, AXP stock's Schaeffer's put/call open interest ratio (SOIR) is 1.37, in the 78th annual percentile. In other words, put open interest outstrips call open interest by a bigger-than-usual margin, when looking at options expiring in the next three months.

Once again, history is on the side of the bears. American Express Company shares have declined in the session after six of the past eight earnings reports. This time around, the options market is pricing in a 5.3% move in either direction for AXP stock -- last seen down 1.1% at $75.87, contributing to a 4.1% April swoon.

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