Weekend Trader Alert

November 27, 2022

Open Positions Update

  • Please extend the scheduled time-stop date on the Illinois Tool Works (ITW) March 17, 2023, 200-strike call to Monday, December 12.

The following is this week's recommendation:

Morgan Stanley (MS)

Place a limit order to buy the Morgan Stanley (MS) February 17, 2023 87.50-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, November 25, this option was offered at $7.30. MS closed at $90.91 on Friday, November 25.

Do not attempt to enter this position after Monday's close.

Please use the following guidelines to manage the position:
  • Exit the position if the option is at a 100% gain from your entry price.
  • If the option has not reached its target profit by 3:00 p.m. Eastern time on Tuesday, December 27, close the position.
  • If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
Bank stock Morgan Stanley (MS) is forming a cup-and-handle pattern that is currently flagging. The shares are back above their 200-day moving average, with a confluence of rising moving averages below the support price.

There’s additional support at MS’ year-to-date anchored VWAP (volume-weighted average price) -- the first time there hasn’t been a failure at this level all year. December and January are the second and third most bullish months of the year, from a seasonality perspective, making now the time to strike with MS.

A further breakout could force money managers to buy shares of MS, and the 95- and 105-strikes could act as magnets.

Digging deeper, the stock's 50-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 1.13, and is rolling from near all-time high exposure levels. In other words, this suggests a healthier-than-normal appetite for long puts of late.

Now looks like an ideal time to speculate on the stock's next moves with options, given its Schaeffer's Volatility Index (SVI) of 26% stands in the low 10th percentile of readings from the past year. This means options traders are pricing in low volatility expectations for MS right now.

Our recommended February 87.50-strike call has a leverage ratio of 8.2, and will double in value on a 12.3% pop in the underlying shares.

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