Two big stocks, two bold calls. That describes last Friday’s "Options Action," where the traders got bearish on a financial giant, and bullish on the king of Internet search.
First, the bearish trade. Looking to this week’s earnings, Enis Tanner of riskreversal.com found one company he was particularly concerned about: financial services giant Morgan Stanley . While JPMorgan reported decent numbers, Tanner pointed out that on JPMorgan’s call, CEO Jamie Dimon said the bank saw a soft quarter for capital markets businesses. A soft investment banking quarter could be a significant headwind for a company like Morgan Stanley.
Taner also provided another reason to be bearish: Europe. Pointing out that (MS) is strongly correlated to European banks, Enis argued that risks to Europe could be risks to Morgan Stanley, and weakness emerging from Europe could rear its head in Morgan Stanley’s Thursday earnings report.
So as a bearish play, Tanner bought the August 13/11 put spread for $0.30. And he wasn’t the only one — as of noon Monday, the August 13- and 11-strike puts were the two most heavily traded Morgan Stanley puts of any expiry. His trade and the breakdown are below.
ENIS’S MORGAN STANLEY TRADE
• BUY THE AUGUST 13-STRIKE PUT FOR $0.40
• SELL THE AUGUST 11-STRIKE PUT FOR $0.10
HOW ENIS’S MORGAN STANLEY TRADE MAKES MONEY
• LOSSES ABOVE $12.70
• PROFITS BETWEEN $12.70 AND $11.00
• PROFITS CAPPED AT $11.00
On to the bullish trade. Oppenheimer’s Carter Worth looked at the chart of Google and noticed that although the stock has risen, the companies P/E ratio has fallen significantly. Translation: the stock is cheap by his work. His price target: $700 by October. CRT Capital’s Mike Khouw agrees with Carter and expressed his view by buying the September 575-strike call for $29.50. That contract is the fourth most active call for all Google options.
His trade and breakdown are below.
MIKE’S GOOGLE TRADE
• BUY THE SEPTEMBER 575-STRIKE CALL FOR $29.50
HOW MIKE’S GOOGLE TRADE MAKES MONEY
• PROFITS ABOVE $604.50
• LOSSES BELOW $604.50
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