Shares of investment bank Morgan Stanley (MS) are down about 12 percent in the last year, but have been trending higher in recent weeks. One trader sees the current uptrend continuing in the next few sessions.
That’s based on the December $94 call. With 18 days until expiration, 2,907 contracts traded compared to a prior open interest of 135, for a 22-fold rise in volume on the trade. The buyer of the calls paid $0.85 to make the bet.
Shares recently traded for $90, so shares would need to rise $4, or just under 5 percent, in the coming days for the option to move in-the-money. That’s still well under Morgan Stanley’s 52-week high near $110.
Investment banks have been slowing this year as new IPOs and mergers have ground to a halt. Plus, rising interest rates have weighed on individual investors, reducing their willingness to borrow.
Action to take: Despite these headwinds, shares are attractively valued at 12 times forward earnings, and the bank has a solid reputation. Shares look attractive at current prices, especially with shares yielding about 3.5 percent.
For traders, the option is a quick bet that could deliver mid-double-digit returns in a matter of days. It would take a strong rally for shares to move in-the-money, so don’t hold out for a big winner here.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.