Time to Buy Calls on This Big-Cap Bank Stock

Bank stock Morgan Stanley (NYSE:MS) recently pulled back to its ascending 40-day moving average, which has marked buying opportunities in the past. Despite the recent dip, the equity is up more than 18% year-to-date, and over 52% year-over-year, outperforming the broader S&P 500 Index (SPX) and the Financial Select Sector SPDR Fund (XLF). What's more, the shares are trading above $46, which is half their 2000 all-time high, and north of $47, which is home to a trendline connecting MS' 2000 and 2007 peaks. This trendline acted as resistance earlier this year, but could now serve as an added layer of support.

Despite the security's outperformance, Wall Street remains skeptical. Not even half of the analysts following MS deem it worthy of a "buy" or better endorsement, leaving the door wide open for potential upgrades to lure more buyers to the table.

The stock's Schaeffer's put/call open interest ratio (SOIR) of 3.00 indicates that puts roughly triple calls among options expiring within three months. This ratio sits in the 100th percentile of its annual range; since 2016, elevated SOIR readings have marked prime buying opportunities for MS stock.

Low expectations are being priced into the stock's near-term options, too, per its Schaeffer's Volatility Index (SVI) of 21% -- in the 20th percentile of its annual range -- a potential boon to premium buyers. Lastly, our recommended call has a leverage ratio of 9.7, and will double in value on a 9.8% rise in the underlying shares.

Subscribers to Schaeffer's Weekend Trader Alert options recommendation service received this MS commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.