Friday, December 21, 2007

E*Trade (ETFC)

There is no question as to the trend E*Trade (ETFC) has 'enjoyed' for the past few months. And with the avalanche in full flow there would be little desire to want to jump into the snow and play, but the stock must be near an attractive price for a takeover bid from the likes of T.D. Ameritrade. If there was a takeover interest it probably would be the interest of the buyer to make an offer sooner rather than later, to at least stem the flow of brokerage (its key asset) cancellations/transfers which is no doubt underfoot.

From a technical perspective the stock lost $3.69 support on Thursday to end with a $3.37 close. Supporting technicals remain bleak, but the real interest here is less on the short term and more on what the future might bring. If the stock was to receive a buyers bid I suspect it would be over the next 12 months (certainly the stock price couldn't last another 12 months shedding as much as it has). This makes the January 2009 $2.50 strike call at $1.90 an interesting prospect. The more cautious could go with the January 2010 $2.50 strike at $2.20 from the ask - but I can't see Etrade lasting that long in its current form.

Treat this trade like a 20/1 shot with three legs; stick the trading equivalent of a fiver on it and keep an eye on the headlines.