E*Trade Financial is starting to rally on signs that business is improving, and one big investor is betting on a sustained run higher.
optionMONSTER's Heat Seeker tracking system detected the purchase of more than 12,500 October 20 calls against open interest of just 212 contracts. Almost all the activity occurred in a five-minute period, first for $0.08, followed by a single large block that priced for $0.10.
ETFC rose 3.28 percent to $15.11 yesterday, and is up 30 percent in the last month. The stock gapped higher on July 23, one day after reporting a surprise second-quarter profit. Its loan portfolio improved, with fewer loan losses and delinquencies, while a spike in equity trading drove overall revenue far past analysts' forecasts.
The company, which provides online banking and brokerage services, has been moving sideways since the 2008 market crash, mostly fluctuating between $10 and $20. Adjusting for a reverse stock split in June, it had traded for over $200 before the mortage bubble burst.
Yesterday's call buying reflects a belief the stock will rally back toward the top of the recent range or potentially push through it. Given the amount of time until expiration and the low cost, the strategy offers an inexpensive way to leverage a potential rally in the shares.
Sentiment in financials also took a turn for the better yesterday after European megabanks HSBC Holdings and BNP Paribas reported strong earnings and a big drop in bad debts.
Overall options volume in ETFC was almost 4 times greater than average in yesterday's session, with calls outnumbering puts by 28 to 1, according to Heat Seeker.
Disclosures: E*Trrade is a competitor of tradeMONSTER.
(Chart courtesy of tradeMONSTER)
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