Over the last few years, it was almost taken for granted that Goldman Sachs (NYSE:GS) was the cream of the crop when it came to investment banks. Well, after its respective earnings announcements this past week, Morgan Stanley (NYSE:MS) outdid its rival. There are headlines going around like, “Morgan Stanley Outshines Goldman Sachs in Trading.” The one place this was apparent was in equity trading where Goldman Sachs had net revenue of $235 million compared to $1.4 billion for Morgan Stanley. Morgan Stanley also seemed to outperform in investment banking.
In my opinion, one quarter does not mean Morgan Stanley has overtaken Goldman Sachs as the best investment bank in the world. GS still has a market cap that far exceeds it. However, it does beg the question, “Which one is the better investment over the next year?” There are some points that are in Morgan Stanley’s favor.
While stock traders basically can only take a long or a short view on an underlying stock or ETF, options traders are given much more flexibility in the way they invest and assume risk. Headlines can be motivators for many investors to buy, sell, or hold, and they can also create, change, and/or exacerbate sentiments and manias, both bullish and bearish, which can add to volatility in the marketplace and consequently the profit/loss profiles of many investors.
When evaluating a trade, some investors look at the volume in the underlying stock as well as open interest, the bid/ask spread, and option volume in order to ascertain if liquidity is adequate. Some stocks tend to have more robust options volume than others, but “heavier” options volume does not necessarily mean the stock is of higher quality. Sometimes, we come across a stock that has seen notably heavy volume at one strike compared to another.
