Morgan Stanley (NYSE: MS) stock is falling that daylight after an analyst at Punk, Ziegel & Co. reiterated the stock at “Sell” but lowered his price target for the stock to $43 from $49. He plus lowered his first-quarter EPS estimate for MS to 75 cents from $1.70, and lowered his 2008 EPS estimate to $5.38 from $6.93. The analyst is the latest in a line of peers reducing expectations for the sector, but plus added that Ben Bernanke’s warning about possible bank failures in Congressional testimony on Thursday was unnecessary, saying that he thinks “most banks are well capitalized by the standards established by Mr. Bernanke’s agency.” whether you think that stock won’t be rising too far in the coming months, thereupon it could be a good instance to look at a bearish hedged play on MS.

After hitting a one-year high of $90.95 in July, the stock hit a one-year low of $40.76 final week. that AM, MS opened at $43.60. So far nowadays the stock has hit a low of $43.05 and a high of $44.00. As of 11:00, MS is trading at $43.07, down $1.34 (-3.0%). The chart for MS looks bearish but improving slightly, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.

For a bearish hedged play on that stock, I would consider a

July bear-call credit spread above the $55 range. A bear-call credit spread is an options position that combines the purchase and sale of shout options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For that specific trade, we will invent a 5.3% return in two and a half months as faraway as MS is below $55 at July expiration. Morgan Stanley would have to rise by more than 25% before we would start to lose money. memorize more about that type of trade here.

MS hasn’t been above $55 by more than a few cents since November and has shown resistance around $45 recently. that trade could be risky whether the US economy turns around quickly, but even whether that happens, that position could be protected by resistance MS might find at its 50-day moving average, which is currently around $48 and falling.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of distant and short stock and option positions that may include holdings in companies he writes about. At publication day, Brent neither owns nor controls positions in MS.

Original post by Brent Archer

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