EOT Trade Alert – September 24, 2008

| September 24, 2008

September 24, 2008

Trade Alert:

   Buy MS November 2008 $35 CALLS at $1.75 or better (MSKG)

Company Background:

Morgan Stanley (MS) is one of the largest global financial services firms in the world. The company works with corporations, governments, financial institutions, and individuals.  They’re involved in the sale of securities including debt and equity, managing client portfolios, as well as asset management for individuals and institutions.

Short-Term Catalyst:

This is a high risk, high reward trade.  The financial industry’s been dropping like a stone for over a year now.  The credit crisis has been absolutely crushing the entire industry.  I’ve recommended staying far, far away from any of these companies. . .

However, that’s changing right now.

I like Morgan Stanley because I see them as a survivor.  Along with Goldman Sachs they have weathered the credit crisis and financial storm up till now.  I see them poised to rebound very quickly.  I’m expecting some good news in the coming weeks which will drive financial stocks higher.

First, Warren Buffett is taking a position in Goldman Sachs (GS).  Now Goldman is the number one competitor to Morgan.  This action tells me one thing, the financial industry has been so beaten up that well managed companies are looking attractive. So by extension if GS is a well run bank, other well run firms should be good investments as well.  Morgan fits squarely in that description.

Second, news of the federal bailout’s going to help.  I don’t care what the ultimate bailout looks like.  It will be weeks or months before it starts impacting markets. However, the news some action is being taken by the government is going to be a huge positive influence.  The news will push up financial stocks as a whole . . . and Morgan directly.  (I’m expecting this to be a big driver of the stock in the next few weeks.)

Lastly, Morgan’s stock has been beaten down.  Last week was brutal.  Concerns over the last few weeks with Lehman, Merrill, and AIG have dragged down the value.  I find the company attractive at these levels.  I wouldn’t be surprised to see another firm try to buy them (like B of A buying Merrill).

On a technical basis, the company is trading well below its 20 day moving average.  I believe the stock might find some support to make a run back up to around $35.

Trade Details:

Option Ticker Symbol: MSKG
Underlying Stock Symbol: MS
Current Bid-Ask Price: $1.40 – $1.60
Option “Buy Up To” Price: $1.75
Break-Even On Stock At Expiration: $36.75
Maximum Risk Per Contract: $175

Exit Strategy:

MS is trading at $26.83 a share.  The biggest support level will be at $22.50.  As the stock moves higher it will reach resistance just over $31 and $35.



Category: EOT Trade Alert

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