27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
The discount broker pricing war that has pushed trading commission fees down to $0 virtually across the board has been bad news for broker stocks and fee revenues. However, one analyst said Monday that E*TRADE Financial Corp (NASDAQ:ETFC) is now an attractive buyout target in the post-commission world.
The Analyst
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Bank of America analyst Michael Carrier reiterated his Buy rating and $45 price target for E*TRADE.
The Thesis
Carrier said discount brokers are in a tough spot due to disappearing commission revenue, falling interest rates and peaking retail market engagement for the current cycle. One way for discount brokers to counter the headwinds of losing commission revenue us to scale their businesses via mergers and acquisitions.
Carrier said E*TRADE is an attractive potential target for both Charles Schwab Corporation (NYSE:SCHW) and TD Ameritrade Holding Corp. (NASDAQ:AMTD). Bank of America estimates the potential takeout premium for E*TRADE would be about 25% above market price regardless of the buyer.
“Given its valuation, decent core trends, active expense/capital management, and M&A optionality, ETFC remains our top pick among the online brokers,” Carrier wrote in a note.
M&A could also be good news for the buyers. Carrier said TD Ameritrade could generate 70% cost synergies in a hypothetical takeover of E*TRADE, which would produce between 25% and 30% EPS accretion. Schwab would also enjoy 70% cost synergies while producing between 15% and 20% EPS accretion if it makes a play for E*TRADE.
Benzinga’s Take
Look for discount brokers to be aggressive in making adjustments given their relatively strong cash flows and limited near-term organic growth opportunities. Don’t underestimate how much fear could drive the bidding for E*TRADE as well, as neither Schwab nor TD Ameritrade wants to watch E*TRADE go to its competitor.
Do you agree with this take? Email feedback@benzinga.com with your thoughts.
- Related Links:
- UBS Upgrades E-Trade, Downgrades TD Ameritrade After Commission-Free Shake-Up
- How And Why Are Online Brokers Offering Commission-Free Trades?
27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.