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Two bearish trades, two winners, one strategy. That more or less sums up last Friday's Options Action.
After last week's historic rally in stocks, our traders took advantage of lower options prices and bought put spreads on Morgan Stanley and Coke . The first trade was a bearish hedge against some sort of negative news out of Europe. Of all the U.S. financials, Morgan Stanley appears the most correlated to the turmoil in Europe, often moving in tandem with names Deutsche Bank . The stock had rallied some 55% off its lows, and it was the view of Riskreversal.com's Dan Nathan that all it would take is one bad headline from Europe to send MS shares significantly lower. He suggested buying the November 18/17 put spread for $0.20. It's now worth $0.70, or more than three times his money. Although if he waits until November expiration, he can make the full $0.80 (that would be four-times his money).
So is he taking it off? "Yes"
His trade and breakdown are below:
DAN'S MORGAN STANLEY OPTIONS TRADE - Stock was at $19
HOW DAN'S MORGAN STANLEY TRADE MAKES MONEY
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DATA IS REAL-TIME EXCEPT NOTED WITH *
* DATA DELAYED AT LEAST 15 MINUTES