Wednesday, December 13, 2006

ET - E*Trade

Thursday afternoon at 4:30 E*Trade will hold its 2007 earnings guidance conference call. This stock chart shows quite a volatile picture over the last year, with little total return over that period:

But the recent history of gap downs didn't stop call options players from stepping up to the plate Wednesday by jumping into the December 22-1/2 calls. More than 10,000 of the contracts traded Wednesday mostly at the offer with just 2 days to go before expiration and the stock hovering at just below the $22.50 strike price. Even a 50-cent dip in the stock tomorrow, or Friday will wipe out the value of those calls.

Guidance on Thursday afternoon is going to have to be nothing short of perfect to get the stock to cross past that $22-1/2 threshold on Friday to make the options trade profitable. One consolation that the stock chart shows is a series of higher lows on the chart since June and marginally higher highs even with sharp gaps since summer; still a breakout by this Friday - an expiration Friday - will be a tall order.

One other interesting note, on November 30th, Morgan Stanley initiated coverage on ET with an "Overweight" rating and a $30 target. The bullish coverage came only a few weeks after Schwab unloaded U.S. Trust, and flush with billions in cash, speculation surfaced that perhaps SCHW would make a takeover offer for ET. The takeover speculation has since died down.

So a confluence of events are coming together to make the next 48 hours of trade in ET very interesting. Trading in the Dec22-1/2 options, whether calls or puts, will be a highly risky proposition even if those options are cheap at around 40-cents.

No comments: