Wednesday, July 20, 2011

E*TRADE Financial (ETFC) - Stock Pops on Citadel Push to Sell

ETFC is trading $15.06, up 16.3% with IV30™ down 2.5%. The LIVEVOL® Pro Summary is below.


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E*TRADE Financial Corporation (E*TRADE) is a financial services company, which provides online brokerage and related products and services to the individual retail investors, under the brand E*TRADE Financial.

This is a quick early morning note to point out the news and what seems to be the start of a very busy day in the options.

The news driving the stock is this:

As Deal Journal colleague Brett Philbin reported, Citadel this morning disclosed its “continuing and significant dissatisfaction” with E*Trade’s financial performance and management. And Citadel wants the company to hold a special investor meeting to talk about steps to improve the company, including a possible sale.

Citadel shares are about 14% higher in pre-market trading, at $14.72.

Citadel owns 9.8% of E*Trade’s outstanding stock. When E*Trade was staggering under heavy losses from its mortgage portfolio in 2007, Citadel plowed $2.5 billion in cash into the company. Citadel also injected the majority of $1.7 billion in a late 2009 debt exchange. Citadel’s CEO, Ken Griffin, joined the E*Trade board.

But with E*Trade’s shares trading at a fraction of their 2007 adjusted stock price of more than $200, Citadel seems to have finally lost patience.
Source: WSJ Blogs: Deal Journal, written by Shira Ovide.

The company has traded over 4,300 contracts in the first 10 minutes (ish) on total daily average option volume of just 3,895. Calls have traded on a 2.2:1 ratio to puts. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action, thus far. It looks like the Aug 15 calls are trading heavily, already, as are the Aug 16 calls.

The Skew Tab snap (below) illustrates the vols by strike by month.

As of just ten minutes into the trading day the skew hasn't changed shape -- that may change very soon. I believe the next earnings release is due out in the Aug cycle, so the front month should be elevated to the back.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20).

We can see the stock pop. On the vol side, we can see that the IV30™ was/is elevated to the HV20, which was a reflection of heightened risk relative to the recent past. The stock move today sort of vindicates that elevated vol.

Possible Trades to Analyze
Keep an eye on the skew as the upside could get super bid and set up some call spreads, or calendar call spreads.

This is trade analysis, not a recommendation.

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