Options Buyers Optimistic Ahead of Morgan Stanley Earnings

However, short-term options traders are still more put-heavy than usual on MS

Managing Editor
Jan 17, 2018 at 1:01 PM
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Bank stocks remain in focus today, with a handful of companies reporting earnings. Big-cap financial name Morgan Stanley (NYSE:MS) will soon be in the spotlight, too, expected to report fourth-quarter earnings before Thursday's open. Below, we take a look at how MS stock has performed on the charts, and how options traders are speculating ahead of tomorrow's report.

Morgan Stanley stock has had a respectable year, picking up more than 29% over the past nine months. MS was last seen up 0.1% to trade at $54.64, and yesterday notched a 10-year high of $55.98.

In terms of earnings reactions, MS stock's post-earnings moves were positive after the last three reports. Looking back eight quarters, the shares averaged a swing of 1.6% in either direction in the session after reporting. This time around, the options market is pricing in a bigger-than-usual 2.6% move for Thursday's trading, per at-the-money implied volatility data.

Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is showing MS with a 10-day call/put volume ratio of 1.95, ranking in the 84th percentile of its annual range. This suggests call buying has been extremely accelerated compared to put buying during the past two weeks, indicating options buyers are anticipating an upside earnings reaction for the shares.

The recent appetite for Morgan Stanley calls represents a shift, though. The security's Schaeffer's put/call open interest ratio (SOIR) of 2.61 ranks higher than 84% of all other readings from the past year. This indicates that short-term options traders have rarely been more put-heavy on MS stock in the last 12 months. An unwinding of lingering pessimism in the options pits could translate into a tailwind for the shares, should the company exceed earnings expectations.

Meanwhile, despite MS shares flirting with 10-year highs, not all analysts have bought in. In fact, half of the 14 analysts following the financial stock maintain tepid "hold" or worse ratings. Another upside earnings reaction could fuel a round of upgrades.


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