Trade Update May 8th, 2012:
With the stock 15.73 I sold half at of the May 16/14/12 Put Fly that I paid .23 for on April 13th at .46. I Will let the other half ride for now and see what happens with the banks during this new uncertainty out of Europe and the bank debt downgrade possibilities.
Here is a quick preview of what I will be discussing on Options Action tonight on CNBC at 5pm:
MS reports their Q1 on Apr 19th before the market opens. Implied move about 4.7%, vs 8 qtr avg move of about 4.5% (all 4 of these moves have been higher, stock has had a trend of selling off into earnings and rallying out of it)
The Stock is down about 18% since making 7 month highs in late march, generally under-performing most of it’s peers in this time period. Technically the stock is one of the large cap banks that I see is trading within 5% of it’s 200 day moving average. The stock has been weighed down after Moody’s suggested they may Cut their credit rating by 3 notches on the investment bank. I have no clue whether or not a ratings downgrade is “IN” the stock at current levels, but this seems like the sort of chart that you want to press on the short side.
Much like in the earlier post on Citi, MS is breaking the uptrend channel from the October lows, and below and important technical support/resistance level at $18.
On another note, CDS on MS has been ticking up about 100 bps in the last month (nearing levels not seen since the fall), while realized vols have not been kept pace (chart below). I guess the most important take-away from this chart is that there appears to be a disconnect btwn what equity/options traders are fearing vs that of credit traders in the name.
TRADE: MS ($17.51) Buy the May 16/14/12 Put Butterfly for .23
-Bought 1 May 16 Put for .45
-Sold 2 May 14 Puts for a total of .26 (.13 each)
-Bought 1 May 12 Put for .04
Break-Even on May Expiration:
Profits of up to 1.77 btwn 15.77 and 14, with max gain of 1.77 at 14, payout trails off btwn 14 and 12.23.
Losses of up to .23 btwn 15.77 and 16 and 12.23 and 12. Max loss of .23 above 16 and below 12