All signs point towards increased trading volume in equity options, futures and forex trading. OptionsXpress is among the leaders in discount brokerages that specialize in these areas.
OXPS came public in 2005 and showed nothing but growth through the first half of 2008 before succumbing to the putrid market conditions that followed. The shares had shown good strength through 2007 and then plunged with the markets to bottom at $8.38 /share on March 6th of this year.
As I’m writing, the shares are offered at $17.32 – about double their 2009 low while also about half their 2007 high of $34.95. The company has no debt (short or long term) and they’ve been buying back their own shares since the sell-off. The outstanding shares have dropped from over 63 million to under 58 million since 2007.
Here are their per share numbers as reported by Value Line:
Year ......... Sales ....... C/F ......... EPS ......... B/V ....... Avg. P/E ..,.... 52-wk Range
2005 ........ 2.07 ....... 0.82 ........ 0.79 ....... 1.91 ........ 22.4x ......... 12.48 – 26.20
2006 ........ 3.01 ....... 1.20 ........ 1.15 ....... 2.90 ........ 24.2x ......... 20.75 – 33.94
2007 ........ 3.92 ....... 1.64 ........ 1.55 ....... 4.41 ........ 16.7x ......... 20.78 – 34.95
2008 ........ 4.17 ....... 1.66 ........ 1.49 ....... 4.56 ........ 14.0x ......... 10.50 – 33.74
2009 will be a down year. Zacks and others see about $1.04 and $1.31 for 2009 and 2010 respectively as markets gradually recover. I’m a bit more optimistic than they are that earnings will pick up sooner and stronger.
At today’s quote OXPS is now trading for about 13.3x next year’s estimate. That’s well below almost all historical levels including 2008’s horrific market environment. In fact, these shares are now below the lows from the entire period from late 2005 right through most of 2008.
With proven earnings power of around $1.50 /share (attained in both 2007 and 2008) it doesn’t take a lot of imagination to picture a 16 multiple and a $24 minimum price target over the next 12 - 24 months. That may well prove conservative as OXPS hit peak share prices of $26.20, $33.94, $34.95 and $33.74 in the calendar years 2005 through 2008 respectively.
For short-term traders here’s a nice play for less than six months…
......................................................... Cash Outlay ............ Cash Inflow
Buy 1000 OXPS @ $17.32 /share .............. $17,320
Sell 10 March $17.50 Puts @ $1.90 /share .............................. $1,900
Sell 10 March $17.50 Calls @ $1.75/share ................................ $1,750
Net Cash Out-of-Pocket ........................... $13,670
If OXPS rises to at least $17.50 by March 19, 2010 (+ 1.4% or better from today’s price):
 The $17.50 calls will be exercised.
 You will sell your shares for $17,500.
 The $17.50 puts will expire worthless.
 You will have no further option obligations.
 You will end up with no shares and $17,500 in cash.
That’s a best-case scenario net profit of $3,830/$13,670 = 28%
achieved in less than 5.6 months on shares that only needed to rise by 1.4%.
What’s the downside?
Is OXPS remains under $17.50 /share on March 19, 2010:
 The $17.50 calls will expire worthless.
 The $17.50 puts will be exercised.
 You will be forced to buy another 1000 shares of OXPS.
 You will need to lay out an additional $17,500 in cash.
 You will have no further option obligations.
 You will end up with 2000 shares of OXPS.
What’s the break-even point on the whole trade?
On the original 1000 shares it’s their $17.32 purchase price less the
$1.75 /share call premium = $15.57 /share.
On the ‘put’ shares it’s the $17.50 strike price less the
$1.90 /share put premium = $15.60 /share.
Your average break-even would be $15.59/share.
OXPS could drop by as much as $1.73 /share (-9.9%) without causing
a loss on this trade.
Disclosure: Author is long OXPS shares and short OXPS options.
OXPS came public in 2005 and showed nothing but growth through the first half of 2008 before succumbing to the putrid market conditions that followed. The shares had shown good strength through 2007 and then plunged with the markets to bottom at $8.38 /share on March 6th of this year.
As I’m writing, the shares are offered at $17.32 – about double their 2009 low while also about half their 2007 high of $34.95. The company has no debt (short or long term) and they’ve been buying back their own shares since the sell-off. The outstanding shares have dropped from over 63 million to under 58 million since 2007.
Here are their per share numbers as reported by Value Line:
Year ......... Sales ....... C/F ......... EPS ......... B/V ....... Avg. P/E ..,.... 52-wk Range
2005 ........ 2.07 ....... 0.82 ........ 0.79 ....... 1.91 ........ 22.4x ......... 12.48 – 26.20
2006 ........ 3.01 ....... 1.20 ........ 1.15 ....... 2.90 ........ 24.2x ......... 20.75 – 33.94
2007 ........ 3.92 ....... 1.64 ........ 1.55 ....... 4.41 ........ 16.7x ......... 20.78 – 34.95
2008 ........ 4.17 ....... 1.66 ........ 1.49 ....... 4.56 ........ 14.0x ......... 10.50 – 33.74
2009 will be a down year. Zacks and others see about $1.04 and $1.31 for 2009 and 2010 respectively as markets gradually recover. I’m a bit more optimistic than they are that earnings will pick up sooner and stronger.
At today’s quote OXPS is now trading for about 13.3x next year’s estimate. That’s well below almost all historical levels including 2008’s horrific market environment. In fact, these shares are now below the lows from the entire period from late 2005 right through most of 2008.
With proven earnings power of around $1.50 /share (attained in both 2007 and 2008) it doesn’t take a lot of imagination to picture a 16 multiple and a $24 minimum price target over the next 12 - 24 months. That may well prove conservative as OXPS hit peak share prices of $26.20, $33.94, $34.95 and $33.74 in the calendar years 2005 through 2008 respectively.
For short-term traders here’s a nice play for less than six months…
......................................................... Cash Outlay ............ Cash Inflow
Buy 1000 OXPS @ $17.32 /share .............. $17,320
Sell 10 March $17.50 Puts @ $1.90 /share .............................. $1,900
Sell 10 March $17.50 Calls @ $1.75/share ................................ $1,750
Net Cash Out-of-Pocket ........................... $13,670
If OXPS rises to at least $17.50 by March 19, 2010 (+ 1.4% or better from today’s price):
 The $17.50 calls will be exercised.
 You will sell your shares for $17,500.
 The $17.50 puts will expire worthless.
 You will have no further option obligations.
 You will end up with no shares and $17,500 in cash.
That’s a best-case scenario net profit of $3,830/$13,670 = 28%
achieved in less than 5.6 months on shares that only needed to rise by 1.4%.
What’s the downside?
Is OXPS remains under $17.50 /share on March 19, 2010:
 The $17.50 calls will expire worthless.
 The $17.50 puts will be exercised.
 You will be forced to buy another 1000 shares of OXPS.
 You will need to lay out an additional $17,500 in cash.
 You will have no further option obligations.
 You will end up with 2000 shares of OXPS.
What’s the break-even point on the whole trade?
On the original 1000 shares it’s their $17.32 purchase price less the
$1.75 /share call premium = $15.57 /share.
On the ‘put’ shares it’s the $17.50 strike price less the
$1.90 /share put premium = $15.60 /share.
Your average break-even would be $15.59/share.
OXPS could drop by as much as $1.73 /share (-9.9%) without causing
a loss on this trade.
Disclosure: Author is long OXPS shares and short OXPS options.
