Morgan Stanley (MS, $18.10, down $10.60) is down $4+ from its opening price of $22.83 and $5 since my earlier blog. The opening price was nearly $6 lower from where the stock closed Tuesday. We are talking about a 35% drop in for a company that smashed Wall Street’s exceptations. Morgan announced early in an attempt to show the Street that it’s withstanding the financial turmoil that has dramatically affected Wall Street.

Morgan’s leverage ratios improved which is a good thing and both Morgan and Goldman Sachs (GS, $100.00, down $33.01) are performing far better than most other financial stocks despite declining profits. The thing with Goldman is that it is now trading a 1x book value. Goldman’s “supposed” book value is $99.

Yeah, it’s hard to trust the numbers but there is no more rulebook. The sell-off in some of these names are unbelievable. And while the sell-off can be swift from one day to the next, so can the rallies. Gold was up $50 to $829 this morning as the dollar was weakening.

The point is I think Morgan’s worth a flyer here at these levels and I’m looking at the October 20 calls (MSJD, $5.00, down $7.00) and the January 25 calls (MSAE, $4.00, down $4.18). Both calls have traded lower – the 20’s have traded as low as $4.40 and the 25’s have traded as low as $3.70. We could hit those levels again if the sell-off continues into the close but at some point the short-sellers are going to have to cover this stock.

Rick Rouse