Position Update - Morgan Stanley (MS)
Our Morgan Stanley (MS) covered call has seen extreme volatility the past several days as the stock fell from 56 to 53.5 on news last week that the company would buy Etrade (ETFC), and then has got caught up in the market sell-off this week.
Unfortunately, MS blew through our stop on the open yesterday when the S&P gapped lower by more than 2.25%.
Now the question is how do we manage this position going forward now that the stock has blown through our stop.
Clearly the market looks very weak on the growing coronavirus concerns.
That being said, I have been monitoring option activity in MS and there has been a steady flow of option activity that is pointing to hedge funds/institutions willingness to buy the stock on any further weakness. Here are those trades:
Today — Seller of 2,300 Morgan Stanley (MS) January 45 Puts (exp. 2021) for $3.35 (trader willing to buy 230,000 shares at 45)
Today — Seller of 1,000 Morgan Stanley (MS) March 48.5 Puts for $1.50 (trader willing to buy 100,000 shares at 48.5)
Yesterday — Seller of 10,000 Morgan Stanley (MS) April 45 Puts for $0.87 — Stock at 49.35 (trader willing to buy 1 million shares at 45)
While there is no guarantee that these traders bullish positions will work, I am encouraged by this option activity. For that reason, for now I am going to hold our position and will look for a way to adjust our call position to create even more yield and lower our cost basis.
If you have any questions about this trade, or any of our positions please don’t hesitate to email me.