Playing E-Trade Earnings

01/27/2009 9:56 am EST


Nick Perry

Equity Options Trader, Schaeffer's Investment Research

E-Trade Financial Corp (ETFC) is scheduled to report earnings after the close today. If history is any guide, this could be a volatile time for the shares. The table below shows data related to the last seven reports. What immediately stands out are the extremely large stock moves. The last two reports were followed by drops of 30% and 24% in the following weeks. The two reports prior to those saw gains of 4% and 42%. In other words, reactions have run the gamut.

Data Courtesy of Thomson Financial

In a post last month, I offered that E-Trade was an interesting situation, but my optimism proved misplaced as the shares have continued to drift sideways in a volatile range. My enthusiasm was, of course, inspired by skepticism from the Street, a situation that hasn't changed.

According to Zacks, ten analysts follow the stock, but none of them rank it with a buy rating. Short interest is still high as well. Data collected by our Quantified Analysis group shows that 17% of the stock's float is currently sold short.

Options data on ETFC, however, is sparse, as it looks like they are no longer opening new series on the stock. I see some April options out there, but the lowest call strike listed is at 3 and the next series appears to the January LEAPs.

Overall, I still think the skepticism on E-Trade is interesting, but the stock needs to show signs of life before you could consider it a contrarian situation. According to Thomson Financial, the consensus estimate is for the company to post a loss of 23 cents per share. Based on the table above, it looks as if the company has had problems surprising on the upside, though that hasn't meant the stock didn't still see a positive reaction.

By Nick Perry of Schaeffer’s Trading Floor Blog

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