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An analyst-induced surge had call players circling around E*TRADE Financial Corporation (NASDAQ:ETFC - 9.85) on Tuesday. Around 5,700 contracts crossed the tape -- nearly double the average intraday volume for call options. As a point of comparison, fewer than 900 puts changed hands. The most active strike was ETFC's January 2013 10-strike call, which saw nearly 2,800 contracts trade. The majority of these went off at the ask price, and open interest rose overnight, hinting at the initiation of new positions.
These calls were purchased for a volume-weighted average price (VWAP) of $0.07, making breakeven for the bullish bets $10.07 (strike plus the VWAP) at expiration. In other words, traders need ETFC to rise about 2.2% by the close on Friday (when January options expire) in order for the positions to be profitable.
This modest requirement isn't too far-fetched for the stock, which gained 3% in yesterday's session after Sterne Agee started ETFC with a "buy" rating, and a price target of $11. However, this positive price movement only highlights how well the equity has done in 2013, with the shares up around 10% on a year-to-date basis.
From a longer-term perspective, though, ETFC has not closed a week atop the $10 mark since late April. Should the equity fail to conquer this withstanding layer of resistance, the most Tuesday's call buyers stand to lose is the initial premium paid.
At last check, the stock was up 0.8% in today's session to trade near $9.85.