Options Check-Up: Time Warner, General Electric, and Morgan Stanley

Analyzing recent option activity on Time Warner Inc, General Electric Company, and Morgan Stanley

by Karee Venema

Published on Oct 16, 2014 at 7:27 AM
Updated on Apr 20, 2015 at 5:32 PM

Among the stocks attracting attention from options traders lately are broadcasting giant Time Warner Inc (NYSE:TWX), blue chip General Electric Company (NYSE:GE), and financial firm Morgan Stanley (NYSE:MS). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on TWX, GE, and MS.

  • TWX managed to buck the broad-market trend lower yesterday -- closing up 2.2% at $72.21 -- after the company announced plans to launch HBO as a streaming broadband service. This move higher was likely music to the ears of option bulls at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), who have been initiating long calls over puts at a faster-than-usual clip in recent weeks. Specifically, the equity's 10-day call/put volume ratio across this trio of exchanges stands at 8.44 -- in the 75th percentile of its annual range. The stock's short-term options have been growing more expensive ahead of Time Warner Inc's early morning turn in the earnings confessional on Wednesday, Nov. 5. Yesterday, the equity's 30-day at-the-money (ATM) implied volatility (IV) jumped 7.1% to land at 32.9% -- just 1 percentage point from a 52-week peak.

  • GE, meanwhile, will step up to the earnings stage ahead of this Friday's open, and option traders have turned increasingly bearish in the weeks leading up to the scheduled event. Since Sept. 30, the stock's 10-day ISE/CBOE/PHLX put/call volume ratio has risen to 0.64 from 0.19, and is currently ranked higher than 98% of similar readings taken in the past year. In other words, General Electric Company puts have been bought to open over calls with more rapidity just 2% of the time within the past year. The equity's 30-day ATM IV has been rising in tandem with this skepticism, too. Over the past two weeks, this metric has surged more than 33% to 23.3%, and is now sitting in the 99th percentile of its annual range. GE closed Wednesday's session 0.8% higher at $24.28, after tagging a fresh annual low of $23.69 in intraday action.

  • MS will also unveil its quarterly earnings report ahead of Friday's open -- following in this week's raft of results from big banks. Option traders have been bearish on the stock for some time now, as evidenced by its 50-day ISE/CBOE/PHLX put/call volume ratio of 0.81, which ranks above 93% of all comparable readings taken in the last 12 months. With anticipation building around Morgan Stanley's quarterly report, the security's 30-day ATM IV jumped 24.3% on Tuesday to close at 39.3% -- in the highest annual percentile -- meaning speculators are willing to pay a little more for their pre-earnings bets. On the charts, MS has tacked on 14% year-over-year, and settled yesterday's session at $32.61.

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