Morgan Stanley Call Buyers Hit on Earnings Surge

Data from the major exchanges shows traders were betting bullishly in recent weeks

Morgan Stanley (NYSE:MS) is trading up 2.9% at $44.04, thanks to the company's strong showing in the earnings booth. The bank reported earnings per share of $1.27, easily surpassing the average analyst estimate of $1.11, due mostly to its fixed income business.

The gap higher for MS shares has them clearing the 200-day moving average, but stuck in the series of lower highs that's contained them since their late-April peak near $49. Indeed, the $45 level in particular has been a level of congestion in 2019. Even so, some options traders may be cheering today's price action.

That's because data from the major options exchanges shows heavy call buying in recent days, signaling bullish expectations among speculators. To be more specific, the 10-day call/put volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 2.31, showing long calls have not only doubled long puts, but the 83rd annual percentile rank for this reading illustrates that such a preference for calls is unusual.

Even with this flurry of call activity, near-term open interest actually showed a slight lean toward puts, due to the setup in the soon-to-expire October series. Peak open interest there is at the 38 and 40 puts, so if traders bought to open those positions, they're likely to be unhappy in today's session. Looking out further, however, those holding the November 46 call, where 22,200 positions are open, could be part of the winning side.