Morgan Stanley (MS)

Lot 2022-3

Update 10/14/2022: I exited my short bull put vertical spread on MS, 35 days before expiration, for a $0.82 debit per contract/share, a profit before fees of $26 per contract. Shares were trading at $76.52, down $2.75 from the entry level.

The Implied Volatility Rank at exit was 71.8%, down 8.6 points from the entry level.

I exited on the day after entry because the position reached 24.1% of maximum potential profit, close to my normal 25% exit point for earnings plays.

Shares fell by 3.5% over one day for a -1,266% annual rate. The options position produced a 31.7% return for a +11,573% annual rate.

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I have entered a short bear call vertical spread on MS, using options that trade for the last time 36 days hence, on November 18. The premium is a $1.09 credit per contract share and the stock at the time of entry was priced at $79.27.

The Implied Volatility Ratio stood at 80.4%.

Premium:	$1.08	Expire OTM
MS-bear call spread	Strike	Odds	Delta
Calls
Long	82.50	65.0%	41
Break-even	81.08	60.0%	46
Short	80.00	55.0%	51

The premium is 86.4% of the width of the position’s short/long spread. The profit zone covers a 2.3% move to the upside and an unlimited move to the downside.

The risk/reward ratio is 1.3:1, with maximum risk of $142 and maximum reward of $1098 per contract.

How I chose the trade. The trade was placed to coincide with MS’s earnings announcement, before the opening bell on the day before entry. The short strikes were set to coincide with the expected move of $3.05 either way, based on options pricing, which gives a price range of $76.22 to $82.32. The Zacks Investment Research earnings surprise predictor gave MS a score of -2.84%, with a rank of 3. The analysts’ consensus is that MSwill announce earnings of $1.51 per share.

By Tim Bovee, Portland, Oregon, October 13, 2022

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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