Traders are chasing E*Trade rally
David Russell | [email protected]
The retail brokerage spent years under a cloud caused by bad loans during last decade's mortgage bubble, but it's been rebuilding itself and crossed a major milestone yesterday when regulators said the lending subsidiary was healthy enough to pay a dividend upstream to the parent company.
Management said it will extract $500 million from the once-imperiled unit and use the money to pay down debt. ETFC rallied 8.05 percent to $15.71 on the news, closing at its highest price in more than two years.
optionMONSTER's Heat Seeker tracking system also showed bullish activity in the September 16 calls, with buyers snapping up 6,500 contracts--more than quadruple previous open interest at the strike. The largest block fetched $0.22, but some were purchased for as much as $0.40.
These long calls lock in the price where shares can be purchased, letting investors cheaply position for a move higher. If the shares gain an additional 10 percent by expiration 2-1/2 weeks from now, those contracts will more than triple in value, which illustrates the kind of leverage that can be achieved with options. (See our Education section)
More than 18,600 contracts changed hands in the session, almost 15 times the daily average. Calls accounted for a bullish 80 percent of the total.
(Editor's note: E*Trade is a competitor of optionMONSTER's sister company tradeMONSTER.)