Trading Morgan Stanley (MS)

09/17/2008 12:00 am EST


Nick Perry

Equity Options Trader, Schaeffer's Investment Research

A look over the new annual lows list shows, among many stocks, Morgan Stanley (MS). The shares are down 15% as they trade break below their July lows.


Chart courtesy of Thomson Financial

To fully appreciate where the stock stands, we need to look out to a monthly chart.


Chart courtesy of Thomson Financial

Here we see that the stock is hitting levels not seen since October 2002. A breakdown here would put the shares back to "mid-1990" levels.

One point that I noticed was that the Schaeffer's Volatility Index (SVI) has shown a big spike. This would suggest that option prices have become much more expensive.

My first thought was that SVI might be signaling something suspicious. However, upon further inspection, that spike seems less "shady" than I first thought. Historical volatility on the stock has ticked up recently so that will yield an upward force on the SVI. We also have an earnings report due. You almost always see implied volatility pick up ahead of events like that.


This morning's option skews scan showed heavy put accumulations, and a look to the overall activity today shows heavy activity at the September 30, 25, and 15 strikes. So, while there is a logical explanation for the increase in implied volatility, it still seems that a few are betting on more downside action.

By Nick Perry, of Schaeffer’s Trading Floor Blog

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