since the time of the trade morgan stanley shares have been flat. leaving dan with a stuff choice, take a small loss or hold out for bigger gains. "options action" biggest fan is tuned into the show. he only wants to know what thing -- what will dan do now? in you simply bought that may 16, you would have lost more than half your money. if dan closed out today, he would be looking at a loss of about 30%. when you risk less, you lose less. banks clearly tonight it on the chick today. are you staying with the trade? >> yes. i'm feeling better about it. there was enthusiasm about it, but the stock is basically up a tad for the week. i wasn't playing the earnings, but sentiment, a poor technical picture and moody's going to downgrade this company. to me, i used that structure with defined risk, because i wanted to hold out. >> mike? >> i gra el wholeheartedly. a relatively cheap weigh, it's not only a cheaper one. we really aren't see the fundamentals that will drive these institutions. at this point i think people are very concerned. >> particularly in

dan couldn't stand shares of morgan stanley. to define his risk. the may 16 -- >> now, to make money, dan needs morgan stanley to trade below that put strike price by more than the cost of the trade or below $15.5 by may expiration, but 45 cents? >> it's not inconsequential. >> i should say not. dan shows us how to do this for less. to spend less, he sold not one, but two of the may 14 strike puts for a total of 26 cents. but he did something even better. he made making money easier, and all it took was simple math. between the 45 cents he spent buying one put and the 26 cents he collected selling the other two lowest strike puts, dan reduced the cost to just 19 cents. now, instead of needing morgan stanley to fall below to make money, by cutting his costs, dan can see profits if the shares fall by more than those 19 cents, or below 15.81 by may expiration, but there's a trade off. by selling more puts than he bought, he could be forced to buy morgan stanley stock at that low put price, or in this case for $14, even if the stock falls well below th

of morgan stanley. >> the most important thing with any professional service firm is to tap the d.n.a., to find out what it is that is the magic about the institution and morgan stanley 75 years old found it coming out of the great depression the magic of morgan stanley is the quality ofhe people dealing with exceptionallyly complicated problems. helping clients find solutions to tough situations. so my challenge is to get us back to those roots, to. ly phi those roots and to let the organization run with it. >> rose: mike alan, evan thomas, jon meacham and james gormon when we continue. captioning sponsored by rose communications from our studios in new york city, this is charlie rose. >> rose: we begin tonight with politics. mitt romney strengthened his grip on the republican presidential nomination last week after sweeping victories in wisconsin, maryland, and washington, d.c. with a significant need delegates, romney appears likely to face president obama this november. over the weekend, newt gingri

what are your expectations for morgan stanley?> tomorrow when they announce earnings, consensus is 42 cents a share but everybody needs to be aware that excludes dva loss. the headline number, the gap number is probably going to be a loss, not a 42 some profit. understand it doesn't necessarily make it a miss. >> right. >> morgan stanley has certainly struggled. what they have done has gotten them on the right track. i don't think they are going to disappoint tomorrow. it's a tough call day to day. as long as the economy includings along, there is going to be a lot of earnings upside and much better returns out of the stock. >> what about their exposure to europe? are they subject to the whims of the debt crisis as other banks are? >> europe is definitely an issue but it's not a morgan stanley-specific issue. the aur row zone is the second largest economy in the world. if it goes south, we've all got problems. >> that's for sure. >> the way it's gone, morgan stanley underperforms. good news, it overperforms. i don't think it makes

you like morgan stanley and that is a stock that whenever we see trouble, morgan stanley seems to fallhe most of all the shares. you see upside despite the ongoing problems? >> the bear case is well understood. it's a stock that people love to hate and people are worried about the moody's downgrade and the cost of capital increase and the fact of the matter is the stock is extremely cheap. they traded between one and two times and trading for about $16 and they are about $28. it's very, very cheap. they have a great position in tech investment banking and leading the facebook ipo and a great business. it's not as bad of a situation as people think. >> charles, when i interviewed managers in the hedge fund community, this seems to be the name that the hedge fund managers are shorting the most. they are setting up trades and the long and the short. can you address that and why this is the favorite short financial if you will? >> there was a theory that you always pick the next weakest name to go. first bear stearns and then lehman brothers and now the wisdom is if something bad happens,

morgan stanley is up after a better-than-expected quarter. s up, although not as much as it had been this morning. but goldman sachs down again. goldman responded quite negatively at this point to the earnings that we got from that company a few days back as we watch bank of america shares up very slightly at this point, below $9. >> excite figure you own tumi. unexcite figure you own a lot of other stocks. >> yeah. >> apple shares right now down by 1.5%. we're below the $600 mark. this is just something worth watching. we're expecting apple to report earnings next week. maybe that sets up for a nice pop on the back of earnings if apple does beat. but the question about iphone shipments -- because you can say ipad shipments or mac shipments may be weak but you can always say that iphone will offset that. if iphone comes in weaker, could spell trouble for the numbers. >> and apple will spoil things when they talk about nokia tonight. i think microsoft is more of a windows 8 story tonight. >> while we've moved away from tumi, spanish ten-year yi

but didn't create the pitfalls and the trap doors that destroyed morgan stanley? >> yeah.you said, he is a super charasmatic individual. he has cultivated this heroic image based upon things that happened during the crisis. if you look back there is a reason that morgan stanley was, if not the weakest, among the weakest of the wall street banks that, you know, had to take tarp money and bail-out money. so, yeah when he we want back to morgan stanley in 2005, he got the firm heavily invested in sub-prime, increased their leverage made a few very disastrous acquisitions. >> when he came back in '05, i affirm actively pulled out bill pursell, who had been his co-ceo but mack came back, pushed out pursell and had a 2-point game plan as you pointed out in the article. leveraged 32 to 1 which is crazy by any business perspective and invested in the derivatives that caused the cataclysm so why is he not in that litny of dick fold jimmy caine who led to their companies over the precipes. >> i think part of is during the financial crisis there was such a lack of heroic narrative wh

morgan stanley on track to cut $1.4 billion in costs.with so many issues just as neil pointed out facing these banks, they have to keep expenses under control because for the traditional money center banks, we are operating in a low rate environment and there isn't a lot of demand for lending, you have to keep the costs in line in order to help your bottom line. kate can talk about the b of a program. >> kate, do you think it's a bottom for the stock or not? >> i don't think right now's a bottom. i think the bottom was probably november or december of last year. you're not talking to a stock picker but my humble opinion is they were really bumping along the $5 range at that point last year. and they've had an amazing comeback since then including really excitement in the investor community this morning and pre-market trading. decent showing during the investor conference call. does seem like some confidence is coming for brian moynihan. on the expensive side i have to agree. the only bank we haven't heard a lot of expense cutting rhetori

but i'll say, "no, morgan stanley." [ticking] >> this is shaybah, a desert wilderness where temperatures can reach 135 degrees. beneath these sand dunes lie 18 billion barrels of oil, more than four times the proven reserves of alaska. and it's costing billions and billions to tap into it. with all the talk about kicking our addiction to foreign oil, the kingdom of saudi arabia is doing everything it can to keep the oil age going. let me be blunt: is it your hope to prevent a switch away from oil? somebody said the country is the oil business. i mean, you absolutely need to do this for your own survival. >> and what's wrong with that? [ticking] >> when the u.s. oil companies came here in the '40s and '50s, the americans moved into the area with their families and developed it to suit their tastes and their way of life. they created a replica of american suburbia. today you could be in the outskirts of houston or los angeles. it's almost like it's an enclave within saudi arabia. it's--different from the rest of the count

morgan stanley lower by about 0.6%. >> so while morgan is stanley's stock may have dropped in recent weeks, bank earnings so far have been pretty strong. jpmorgan has beaten expectations, first quarter coming in at $1.31. dividend announcing a share buy back of $15 billion, as well. citi also beating expectations. the epf for the q1 coming in at 0.95. citi, you may remember meredith whitney was pretty down beat about citi. said that she was very unlikely to change her view on this company. the earnings came caused her to reverse her call upping citi after its result. pandit, as well, warning about macro uncertainty. this keeps cropping up even when companies are beating. goldman sachs, as well, $3.92. boosted by investment banking. so three strong sets of banking earnings so far. but just to reiterate the numbers that we're looking out for as we get further into the week, morgan is anly, bank of america, also the blackstone group coming out with its figures, as well. >> ellen, let's talk about some bank numbers. your thoughts on the banking sector. >> i think earnings season has come

i think morgan stanley is your play. >> shares of morgan stanley are down around 11% since that call.hat's the deal? >> i tell you, i still think the thesis works but my timing was off on this. timing is everything in this business. i believe if you want to play capital markets increase, morgan stanley is the way to go. i wouldn't change my position on this at all. >> let's do more on the banks. jpmorgan kicking off earnings season tomorrow reporting before the bell. our next guest says it will set a high bar for the rest of the group, the banks may not reach the high expectations. hey there, david. >> good afternoon. >> we can talk about jpmorgan but let's stay on morgan stanley theme for a second. you say it's the most challenged stock for the entire quarter for banks. why so? >> it's not really set up for them well right now. what morgan stanley does really well in our view is investment banking, equity underwriting and equities trading. those are weakest parts of the quarter. dcm were some of the strengths and that's really not the strength of morgan stanley right now. compared to

morgan stanley or others, unlimited risk. stocks can go to zero and that's a long time. they have a 7-1 pay out and defines the risk at $23. interesting risk reward here. let's move on to the next trade bank. momentum favorite in burrito king, chi potly. it is 7% and the stock hit a high in today's session. where is it headed next week? let's call to the charts, el mariachi himself. carter, what do you see in the charts? >> four graphics and the story is quite compelling. the daily chart over two years and one of the principals is that when you get to the bottom or top or top or bottom, you respond to the channels. when you get to the top, you back away. you get to the top and you back away as you respond by bouncing. at the top, it's not good risk reward. you take a look at the same circumstance on a five-year basis. it's the same principal. 40 or $50. a massive advance. at a level where the price or perfection and often that's not the situation you want to be in. let's look at what we are talking about. next week you have earnings. the last six quarters have missed on

morgan stanley, the returns are depressed at about 9% or 10% and bank of america their loan growth fell. that is far inferior to say jp morgan. >> simon, i am not the mentalist baker what are you doing? >> i wish i was the mentalist. trading would be a little better. anyway the financials are sort of coming out with blown out earnings but really low expectations set. still a lot of headwinds in the regulation ahead and i inning this environment when interest rates are so low these could trade higher if qe 3 doesn't happen and they could start to make money again because it is very difficult in this environment for them to make money. >> mike murphy, anybody in these banks today? >> yeah. i think you can start similar to what guy said, start to look at the banks but from a trading standpoint. long term i don't think you want to be in these names just yet. plus i think there's a lot of other areas of the market which we'll go over in a little bit where you can make money. right now the financials with the headwinds from europe in their face, if you want to be in there for a trade take it

morgan stanley down almost 18% off march highs. it's tough to press shorts that are down this much in to events especially in what's becoming a very uncertain market. the implied move is higher than a lot of its peers. maybe a little under 5%. and i'm not looking to make a move just on earnings. i want to look out to may. moody's has already told us they may downgrade their credit rating by three notches. that will increase their costs of funding. so i'm going to look out to may and i wanted to look for a low premium structure to have a bearish bet assuming that maybe the sovereign debt stuff in europe heats up again. so i want to make a low premium defined risk bet that this stock maybe goes unchanged. >> so dan is bearish here. he's using what's called a put fly. we have to open the playbook. it's a bear strategy where you buy one put, sell two lower strike puts against it of the same expiration. but you then buy one even lower strike put, you want the stock to go to those two strikes that you're short. so this is a lthread the n

>> i actually prefer morgan stanley. i think there is an up side for morgan stanley. i think it reacts in a big way for now and next quarter. i also think they will have better commentary around investment pipelines, more particular facebook, and i think you'll also see more on the cost-cutting side which is a formality in this industry right now. >> you talk about morgan stanley, it's primarily because of the retail side. on top of that, how about jp morgan? can it get to that $45 range where jamie talked about they would pull back on their stocks if it got to 45 and above. >> with respect to morgan stanley, it's generally on a one-quarter lag, so the q1 will definitely push revenues in q2. the fact that the capital markets continue to hang in there, gold, jp morgan, are all going to continue to work as long as we see decreasing market capital funds. >> it's doug brown, and i'm just curious because the word on the street and the takeaway from money managers that i talk to is it sounds like gold man is derisking. can you talk about maybe what do they see that makes th

years, i don't think that the cost of doing that is going to be terribly high because, remember, morgan stanleyillion in cash on its balance sheet, and i can't see them paying much more than $10 billion for the remaining portion of morgan -- of smith barney, so i -- i think it will be a good acquisition for them. i think it will be done. i don't think it will create any stress on their balance sheet. >> hi, dick, it's karen. let me ask you this. bank of america had a big run. i know were you a proponent of it in the mid to higher single digits. what are your thoughts now? >> well, i'm a big believer in may you're going to go away, so i think that there's a probability that -- that the stock will come down a bit but i really believe this company has 2.75 to $3 earnings in it. i assume, whether it's two years from now, three careers from now, the stock sells ten times that number, i really think the stock gets to the high 20s, low 30s and, therefore, you know, the stock may get hit a little bit here with some profit-taking, but i would be a buyer aggressively all through the summer. >> all right.

morgan stanley -- 22% of their equity owned by mitsubishi ufj. i would like to see morgan stanley partner up with a bank and let our clients benefit through tighter bond spreads. >> all right. you heard it. mark, thanks so much. >> thank you. >> all right. up next on "street signs," why the world's automakers could see the recovery stall because of one explosion at one plant in germany. >> it's amazing. plus, coal has been beaten up by cheap natural gas. but could coal miners actually be ready to turn a corner? we'll find out next. >> you should know as a coal miner's daughter. and you should know, is the wild west out west? silicon valley ceos going rogue. is it time for investors to worry? [ mujahid ] there was a little bit of trepidation, not quite knowing what the next phase was going to be, you know, because you been, you know, this is what you had been doing. you know, working, working, working, working, working, working. and now you're talking about, well you know, i won't be, and i get the chance to spend more time with my wife and my kid

for morgan stanley, the $2 billion.were actually 71 cents from a continuing operations based. if you look at that, well above analyst estimates of 44 cents a share and revenue was higher at 8.1 billion, once you take out dva. a couple of things to note here. if you have looked at their fixed income currencies and commodities trading, the revenue there was up 36% -- 34%, i should say, year over year. a very strong quarter. what's interesting, the quarter-to-quarter -- year over year numbers are very difficult for the first quarter but morgan stanley showing a significant injury in revenue. goldman sachs had a year over year decline there. the company had very strong equity revenue. it was up 6%. this has been an area of difficulty for the big banks. the volume haven't been as strong but morgan stanley mosting a strong quarter. morgan stanley has been very much tied to how europe is acting, in large part because of their exposure to the gips in france. its exposure to the begin country, meaning greece, italy, ireland, por

at the end of the day, morgan stanley down 8% on the highs here. really tough to press short in a very uncertain market. the implied move is higher than a lot of its peers. a little under 5%, and i'm not really looking to make a move, just on earnings here. i want to look out to may. moody's told us they may down grid this company, the credit rating by three notches. going to increase their cost, and make them less competitive with pires. i want to look for a low premium structure, have a bearish bet, that could be the sovereign debt stuff. i want to make a low premium defined risk that this stock maybe goes unchanged on the year on the next five years. >> dan is barryiearish, using a play. you buy one put, sell two lower strike puts of the same expiration. but you then buy one even lower strike put. want the stock to go to the two strikes are you short. so a thread the needle trade. you want it to land just right. walk us through. >> definitely thread the needle this is not cheap to put on. four legs. what i am going to do here and use limits in a

morgan stanley down over 3% in the early going. you know, the question is, is it going to be short term in nature, in other words, in terms of focus yet again potentially on europe and the impact or are we back? that's the fears out there and talk about so often on the set in terms of ceo confidence and the like. replaying last year in their heads and if you look back 12 months, kind of right where where we were in terms of europe. >> we have growth, employment growth. i'm not saying this is 2011. i want to go against this trade. i just think if i wanted to buy -- morgan stanley, i'm a buyer. not a seller. >> same time, just for today's session with the direction of the day, piece together what david said about europe and spanish auction, not only high yields but the minimum amount they could auction went to auction. barclays down by more than 4%. gold down by $48 an ounce. gold is down. the dollar's stronger. flight to safety. the risk appetite in this market is not high. >> well, geez. we have had the best quarter since 1998. we

joining us now with more analysis-- greg peters, he's the head of global cross asset strategy at morgan stanley. >> nice to have you on the program. >> thanks for having me, susie. >> susie: what's your take on these political issues out of europe, and how does this impact american investors? why pay attention to all of this? >> american investors should pay attention because we live in a global marketplace, and correlations are really quite high. but i think you hit the nail on the head with the intro. the combination of backing off or away from austert measures at the same time economic weakness is really starting to rear an ugly head. those two factors is a real concern here. >> you're facing a heightened level of uncertainty, and the election backing away from previously agreed measures with the ecb making a step back. investors not only in the euro zone, but globally are faced with a tremendous amount of uncertainty. >> and these economic numbers coming out of europe makes you worryy if the recession and europe is going to get worse, and what impact it will have on the american economy, bu

similar to morgan stanley, b-of-a took an accounting charge related to its debt. while bank of america's bond and commodity trading business picked up, its core consumer banking business saw a double- digit drop in revenue and bad mortgages increased. a centerpiece of the government's response to all the bad mortgages and other debts owned by banks has been to come up with a way to wind down a troubled bank without bringing down the whole economy. stephen lubben is a law professor at seton hall university. joining us, professor, you looked at how the new regulations would handle a situation if a big bank like bank of america were to fail. are regulators any better prepared to deal with the big bank going bust today? >> they're slightly better prepared. but just slightly. >> tom: and how are they better prepared. >> they have that facility. most importantly, the -- for the financial institutions that it had before but it still doesn't have control overt entire -- >>. >> tom: why is it porn to have control over an entire financial institution especially big banks if

morgan stanley is looking for 140,000.ck from the warm weather boost that we got in january and february. >> is that going to determine, the data that you mentioned last week, whether it's realized as a sell in may and go away or not? will we focus on the earnings story which has been good, 70 to 80% of companies that have reported have beaten expectations. now you've got data to match up with that? >> we have watched you and listened to you. january was up 4.2%. february was 4.1. march was up 3. it's time for a breather. all of the things thaw just cited in terms of the profits, the market has acquitted itself quite well. down four days of this week and up in the fifth day to close out the week. so we see better strength there. the market is telling us something. the news doesn't say -- the market doesn't make the news. the news makes the market. and thereforewe would say, you can use this as an opportunity to rotate into dividend stocks that we were talking about earlier in the show. >> what other areas of the market do

morgan stanley controls the market. they then go to court to continue that wall street regulations that dodd-frank revelations are put in an congress doesn't put the hundred million dollars worth of extra cops on the beat to go up there in scare the living daylights. produce simple. you can summarize this nefarious activity and not simple form. and let me go to a couple pieces of information that came out actually today. one according to the energy information agency, the united states crude oil inventories increased 16 million barrels over the last two weeks. inventory of oil in the united states and up 16 million euros in the last two weeks at a price for a gallon of gasoline went up 7 cents a gallon. there seems to be a little disconnect there in the market. and this morning the department of energy announced that u.s. crude oil production last week rose 228,000 barrels per day to 6 million barrels per day altogether. the highest oil production since 1998, those two combos of higher productions, more oil reserves in

a miserable spanish auction might give you a chance to buy morgan stanley. constantly trashed stock. it was down huge today. you might get it as low as the 16s. that could be an excellent opportunity since when morgan stanley reports tuesday morning i think it will be one of the stronger calls out there. morgan stanley is a fabulous firm. i know it doesn't seem like that anymore. i know it's been tarnished as the european st. paul child. that's nonsense. bank of america reports that morning too. if the banks continue to go down into this quarter and spain's terrible, then b.a.c. might be ready to rally no matter what. even if its results aren't that good. particularly if it's got what's known as a 7 handle, meaning its stock is only worth $7. otherwise, it's not going to be my favorite. let's think about it. if jpmorgan and wells fargo got pulverized on those excellent quarter, it's hard for me to get behind this poorly performing operation that is bank of america. even if the stock's done well in 2012. but that's because it's so cratered in 2011. after the

we will begin with john mac took over as ceo of morgan stanley in 2005. he had a great idea.et's focus on derivatives and mortgages and let's leverage the bank. >> that's what he did, leverage of 32 to 1, investing deeply, heavily in derivatives and mortgages and he took home a bonus of $40 million in '06, right at the height of the bubble. then of course we know what happened: disasthe have are because his strategy was guaranteed to take us down the road to a cataclysm. what did morgan stanley do? they turned themselves into a bank holding company, technical jargon. why? so we could bail them out. they got $107 billion loan from us and $10,000,000,000 in tarp money. what has he learned? when the "new york times" presented an article by greg smith that said wall street was nothing more than a toxic brew? he said why did they even blood pressure that? the last time i checked, we were in this business to make money. you know what, john? there is a difference between making money the right way and cheating your customers. there is a difference between leveraging yourself to the