Optimism Still Rules on E*Trade Financial

Jan.31, 2008 in Market Outlook

Thursday, January 31, 2008
Optimism Still Rules on E*Trade Financial
1/31/2008 12:42 PM
Keywords: ETFC
E*Trade Financial (ETFC: sentiment, chart, options) shares have jumped more than 6% as we head into the afternoon, with the stock apparently bolstered by a wave of company directors snapping up the shares. The trend has been going on all week, as insiders apparently believe the stock is a bargain at its current price. Plus, at midday, E*Trade’s March 5 call (EUS CA) was one of the most actively traded options on the Philadelphia Stock Exchange, with a total of 5,002 contracts crossing the tape.

Across all 6 option exchanges, this out-of-the-money call has seen 9,952 contracts change hands on open interest of 8,310, suggesting that at least some of today’s activity consists of the addition of new positions. The 5 strike is also a popular choice in the February series; the February 5 call (EUS BA) has traded volume of 8,525 contracts on open interest of 13,579.

Outside of the company’s board of directors, though, it doesn’t look as though there are too many traders on the sidelines waiting to jump in and buy ETFC shares. The stock’s Schaeffer’s put/call open interest ratio (SOIR) indicates that most speculators are already on the bullish bandwagon, as the reading of 0.35 reveals an overwhelming preference for calls over puts among near-term options. This SOIR ranks just 13 percentage points away from an annual low.

And, despite the fact that more than 23% of the equity’s available float has been sold short, it would take less than 2 trading days to repurchase all the existing bearish bets on ETFC. The one silver lining in ETFC’s sentiment backdrop is the unequivocally pessimistic stance taken by analysts. With Zacks reporting that the stock has 7 “hold” ratings, along with 1 “sell,” 2 “strong sells,” and not a single “buy,” there seems to be plenty of room for future upgrades… of course, with the caveat that ETFC will likely have to report some kind of good news to earn such a boost.

Posted by Elizabeth Harrow (eharrow@sir-inc.com)

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