Derivatives Trading Ideas
The information provided herein was prepared by Morgan Stanley & Co. LLC ("Morgan Stanley"), but is not a product of Morgan Stanley's Equity or Fixed Income Research Departments. This communication is not a research report, though it may refer to a Morgan Stanley research report or the views of a Morgan Stanley research analyst. We are not commenting on the fundamentals of any companies mentioned. Unless indicated, all views expressed herein are the views of the author’s and may differ from or conflict with those of the Morgan Stanley Equity or Fixed Income Research Departments or others in the Firm. We do not represent that this publication is accurate or complete and we do not undertake to advise investors of changes in the opinions or information contained herein. Investors should note the date of this communication. For additional information, research reports and important disclosures, see http://secure.ms.com.
Options are not for everyone. Before engaging in the purchasing or writing of options, investors should understand the nature and extent of their rights and obligations and be aware of the risks involved, including the risks pertaining to the business and financial condition of the issuer and the underlying stock. A secondary market may not exist for these securities. For customers of Morgan Stanley & Co. LLC who are purchasing or writing exchange-traded options, your attention is called to the publication "Characteristics and Risks of Standardized Options". That publication, which you should have read and understood prior to investing in options, can be viewed on the Web at the following address: http://www.optionsclearing.com/about/publications/character-risks.jsp. Clients engaging in the execution structure known as Spreading should understand that Spreading may also entail substantial commissions, because it involves at least twice the number of contracts as a long or short position and because spreads are almost invariably closed out prior to expiration. Potential investors should be advised that the tax treatment applicable to spread transactions should be carefully reviewed prior to entering into any transaction. Also, it should be pointed out that while the investor who engages in spread transactions may be reducing risk, he is also reducing his profit potential. The risk/ reward ratio, hence, is an important consideration.
The risk of exercise in a spread position is the same as that in a short position. Certain investors may be able to anticipate exercise and execute a "rollover" transaction. However, should exercise occur, it would clearly mark the end of the spread position and thereby change the risk/reward ratio. Due to early assignments of the short side of the spread, what appears to be a limited risk spread may have more risk than initially perceived. An investor with a spread position in index options that is assigned an exercise is at risk for any adverse movement in the current level between the time the settlement value is determined on the date when the exercise notice is filed with OCC and the time when such investor sells or exercises the long leg of the spread. Other multiple-option strategies involving cash settled options, including combinations and straddles, present similar risk.
Any performance data included herein represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted.
Please click on the following link for closing market price and net asset value ("NAV") performance data for periods of 1, 5, and 10 years (or the life of the fund, if shorter) for funds discussed in this communication: http://www.morganstanley.com/etf/performance/etfperformance.html.
Please be advised that Morgan Stanley’s Institutional Equity Division frequently trades as principal and may have recently traded in the securities that are the discussed in this communication. As a result, Morgan Stanley may have a long or short position in these securities and may or may not have traded in a manner that is consistent with the above comments prior to its dissemination.
We remind investors that these investments are subject to market risk and will fluctuate in value. Investors may obtain prospectuses for the funds described in this sales communication from the ETF distributor. The distributor for the iShares and ProShares ETFs is SEI Investments Distribution Co. The distributor for Dow Diamonds, S&P 500, Mid Cap SPDRs SPDRs, Nasdaq 100 Index, US Oil Fund ETF (USO), and Select Sector SPDRs is Alps Mutual Fund Services. The distributor for streetTRACKS is State Street Capital Markets, LLC. The distributor for the SPDR Gold Trust ETF (GLD) and the KBW Regional Banking ETF is State Street Global Markets, LLC. The distributor for the Vanguard ETFs is Vanguard Marketing Corporation. The distributor for Rydex ETFs is Rydex Distributors, Inc. The distributor for WisdomTree ETFs is ALPS Distributor, Inc. The distributor for Claymore ETFs is Claymore Securities, Inc. The distributor for PowerShares is Invesco Aim Distributors, Inc. The distributor for ProShares is SEI Investments Distribution Co. The distributor for iPath ETNs is Barclays Capital Inc. The distributor for Market Vectors ETFs is Van Eck Securities Corp. The distributor for Claymore ETFs is Claymore Securities Inc. The distributor for Bear Stearns ETF is Bear Stearns & Co. Inc. The distributor for Direxion Shares and RevenueShares™ ETFs is Foreside Fund Services LLC. The distributor for ELEMENTSSM ETNs is Nuveen Investments/Merrill Lynch & Co. The distributor for First Trust ETFs is First Trust Portfolios L.P. The distributor for MacroSharesTM ETFs is W.R. Hambrecht & Co., LLC. The distributor for RydexSharesTM is Rydex Distributors, Inc. The distributor for UBS E-TRACS ETNs is UBS Securities LLC. The prospectuses contain more complete and important information about the ETFs and should be read carefully before investing. We define exchange-traded funds as encompassing passively managed index-linked exchange-traded funds, HOLDRs, and closed-end funds. This report is focused on US exchange-traded funds. These funds are registered with the SEC and trade as a single stock under SEC exemptions. ETFs are (i) redeemable only in creation unit size aggregations and may not be individually redeemed, (ii) redeemable only through Authorized Participants, and (iii) redeemable on an "in-kind" basis.
ETFs do not charge sales loads or other nonrecurring fees, but you may pay a brokerage commission on the purchase or sale of ETF shares. Any performance data shown in this communication does not reflect the deduction of a brokerage commission, which would reduce the performance quoted.
Please contact your Morgan Stanley representative for the name of the distributor of any funds mentioned in this sales communication that have not been included above.