Thursday, July 9, 2009

MS Long Puts

Morgan Stanley (MS) has formed a bearish slanted head and shoulders pattern on the daily chart the last few months or so with a neckline around 27ish. The stock broke down out of that level this week and today retraced yesterday's down move on very low pathetic volume. The 20 day MA is crossing below the 50 day MA and there is little support in MS until the low 20s. Coincidentally, the measured move off the H&S pattern has a target of 20; which was the low in April as well.

With the stock trading just under 26 I would buy the August 26 puts for $2.25 here. I think you could get a quick move down in this name especially if the broader market continues lower towards 850 during July, as I tend to think will happen.

I would cut losses quick if MS got above 27.50 as that would be above that neckline which is now resistance. On the downside I am targeting 21 as that is the 200 day ma and should provide some support.

You could also look at selling a call spread at perhaps the 28/30 line if you want to take less risk, however I like the put play since it could be a quick sell and the broad market is feeling heavy here as well.


Anonymous said...

Like it JJ, might use this to hedge my GS long into earnings..

Jason said...

Thanks and yeah it should be a good hedge.