TD Ameritrade says 4Q profit fell 9 pct

OMAHA, Neb. — TD Ameritrade Holding Corp. said Tuesday investors kept its online trading operations busy in its latest quarter as the markets improved but lower interest rates and rising expenses sent its profit down 9 percent compared with a year ago.

Ameritrade said it handled 35 percent more trades per day on average and its trading-based revenue soared almost 38 percent in its fourth fiscal quarter.

The company's acquisition earlier this year of options-trading specialist thinkorswim helped it top trading numbers from last fall's panicked selling during the turmoil around the bankruptcy of Lehman Brothers. And retail traders stayed engaged in the improving market.

The average number of trades it handled soared to an average of 410,576 trades per day in the quarter.

But Ameritrade said low interest rates drove its asset-based revenue, which includes money earned on its customers' deposit accounts and various investment products, down 29 percent. The net effect was a slim 1 percent increase in overall revenue.

It said higher expenses — mostly associated with the thinkorswim acquisition — also hurt its profit.

Ameritrade earned $156.7 million, or 26 cents per share, in the quarter that ended Sept. 30, down from $172 million, or 29 cents per share, a year ago. Revenue edged up to $657.9 million from $649.2 million a year ago.

Analysts surveyed by Thomson Reuters expected earnings of 22 cents a share on $630.48 million in revenue.

Its shares slipped 21 cents, or 1.1 percent, to close at $19.27 Tuesday. Its shares are still closer to the high end of their 52-week range of $9.34 to $20.93.

Over the past year, Ameritrade has tried to limit its costs, boosted advertising to attract more business and acquired thinkorswim.

"We couldn't control the markets and we couldn't control interest rates, so we focused on the things we could control," said Fred Tomczyk, Ameritrade's CEO and president.

The Omaha-based company expects to earn between $1.10 and $1.40 per share in fiscal 2010. Analysts are looking for $1.29 a share.

Credit Suisse analyst Howard Chen said in a research note that he thinks Ameritrade has performed well, but he expects a pullback in trading activity that will hurt the company's prospects.

"Management has executed soundly and fundamentals have remained strong for the AMTD franchise in a difficult operating environment," Chen wrote.

Tomczyk said when the Federal Reserve does begin increasing interest rates, Ameritrade is likely to benefit significantly because it will generate more revenue on its asset-based fees. The company estimates that for every quarter-point increase in the federal funds rate, Ameritrade's earnings per share will increase by 7 cents.

Tomczyk said he is cautiously optimistic about the economy, but he thinks any significant bad news could still send the stock market down.

"I think any recovery here is going to be slow and over a long period of time," Tomczyk said in an interview. "I don't expect us to rocket back here."

Ameritrade continues to hold onto a substantial amount of cash and other liquid assets to help it weather the recession. The company had about $1.1 billion on hand at the end of September.

Company officials said between $260 million and $320 million of that cash will be used to purchase auction-rate securities from investors as part of a previously announced settlement with government investigators.

The auction-rate securities market involved investors buying and selling instruments that resembled corporate debt whose interest rates were reset at regular auctions. They were sold as being as safe as cash, but the market for them fell apart in early 2008.

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Stock Options - What You Need To Know.

Call and What?

An option is a “legal financial contract”. The holder has the right, but is under no obligation, to accrue or sell a predetermined number of stock shares. This is to be done at a price that has been predetermined which is called a strike price. It is also to be accomplished on or before a specific date.

There are just two basic types of stock options, the European and the American. An American stock option is a contract that can be exercised between the purchase date and the expiration date.

Each stock option is designated by the following:

• Name of the stock

• Strike price

• Expiration date

• The premium that was paid for the option plus the broker’s commission

Two of the most popular types of stock options are Calls and Puts. If you own a call you have the right but are not obliged to buy a stock at the strike price at any time before the stock option expires. If an option expires, it is useless and worthless.

The other most common stock option is the PUT. This is almost the exact opposite of a Call. If you own a put you have the right, but are not obliged, to sell a stock at the strike price any time before the expiration date of the option.

How in the world do people trade these stock options? Stock options traders will rarely exercise their option and purchase (or sell) the underlying security. Instead, they will buy back or sell the option. This saves on commissions.

Options officially expire on Saturday following the third Friday of the month in which the option expires. Shares of stock have a 3-day settlement interval but option settle the very next day. The option has to be traded by Friday in order to settle on Saturday.

Another thing you may hear about with regards to stock options is volume and open interest. Volume is the number of contracts that are traded on any given day. The open interest figure is the number of contracts that are outstanding at any given time.

For those who are curious, a Put-Call theorem has been formulated which defines the following relationship for the price of puts and calls:


P=C-S+E+D

• P= the price of the put
• C= the price of the call
• S= the stock price
• E= the present value of the exercise price
• D= the present value of the dividends

An ordinary investor will see a violation of the put-call parity from time to time. This is not a time to instantly buy, but it is a reason for you to check your quotations for timeliness because as you will probably see at least one of them has expired.

If you want to get into the stock option trading business, then you should probably start by writing covered call option for stocks that are currently trading below the strike price of the stock option.

There are many places on the Internet if you do a search for stock options where you can set up an account for just a small amount of money. My advice to you is to do your research well and only put up as much money as you are willing to part with.

Stocks Explained If you want to discover your pot of gold in the stock market, then you have to know it inside out. And for all the inside-out information on the stock market explained in simple, concise, layman terms, all you need to do is click on this link: Stock options.

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Straddle Strategies in Option Trading

The straddle strategy is an option strategy that's based on buying both a call and put of a stock. Note that there are various forms of straddles, but we will only be covering the basic straddle strategy. To initiate a Straddle, we would buy a Call and Put of a stock with the same expiration date and strike price. For example, we would initiate a Straddle for company ABC by buying a June $20 Call as well as a June $20 Put.

Now why would we want to buy both a Call and a Put? Calls are for when you expect the stock to go up, and Puts are for when you expect the stock to go down, right?

In an ideal world, we would like to be able to clearly predict the direction of a stock. However, in the real world, it's quite difficult. On the other hand, it's relatively easier to predict whether a stock is going to move (without knowing whether the move is up or down). One method of predicting volatility is by using the Technical Indicator called Bollinger Bands.

For example, you know that ABC's annual report is coming out this week, but do not know whether they will exceed expectations or not. You could assume that the stock price will be quite volatile, but since you don't know the news in the annual report, you wouldn't have a clue which direction the stock will move. In cases like this, a Straddle strategy would be good to adopt.


If the price of the stock shoots up, your Call will be way In-The-Money, and your Put will be worthless. If the price plummets, your Put will be way In-The-Money, and your Call will be worthless. This is safer than buying either just a Call or just a Put. If you just bought a one-sided option, and the price goes the wrong way, you're looking at possibly losing your entire premium investment. In the case of Straddles, you will be safe either way, though you are spending more initially since you have to pay the premiums of both the Call and the Put.

Let's look at a numerical example:

For stock XYZ, let's imagine the share price is now sitting at $63. There is news that a legal suit against XYZ will conclude tomorrow. No matter the result of the suit, you know that there will be volatility. If they win, the price will jump. If they lose, the price will plummet.

So we decide to initiate a Straddle strategy on the XYZ stock. We decide to buy a $65 Call and a $65 Put on XYZ, $65 being the closest strike price to the current stock price of $63. The premium for the Call (which is $2 Out-Of-The-Money) is $0.75, and the premium for the Put (which is $2 In-The-Money) is $3.00. So our total initial investment is the sum of both premiums, which is $3.75.

Fast forward 2 days. XYZ won the legal battle! Investors are more confident of the stock and the price jumps to $72. The $65 Call is now $7 In-The-Money and its premium is now $8.00. The $65 Put is now Way-Out-Of-The-Money and its premium is now $0.25. If we close out both positions and sell both options, we would cash in $8.00 + $0.25 = $8.25. That's a profit of $4.50 on our initial $3.75 investment!

Of course, we could have just bought a basic Call option and earned a greater profit. But we didn't know which direction the stock price would go. If XYZ lost the legal battle, the price could have dropped $10, making our Call worthless and causing us to lose our entire investment. A Straddle strategy is more conservative and will profit whether the stock goes up or down.

If Straddles are so good, why doesn't everybody use them for every investment?

It fails when the stock price doesn't move. If the price of the stock hovers around the initial price, both the Call and the Put will not be that much In-The-Money. Furthermore, the closer it is to the expiration date, the cheaper premiums are. Option premiums have a Time Value associated with them. So an option expiring this month will have a cheaper premium than an option with the same strike price expiring next year.

So in the case where the stock price doesn't move, the premiums of both the Call and Put will slowly decay, and we could end up losing a large percentage of our investment. The bottom line is: for a Straddle strategy to be profitable, there has to be volatility, and a marked movement in the stock price.

A more advanced investor can tweak Straddles to create many variations. They can buy different amounts of Calls and Puts with different Strike Prices or Expiration Dates, modifying the Straddles to suit their individual strategies and risk tolerance.

If you want to read more information on straddles and other option strategies, visit http://www.option-trading-guide.com/options_guide.html

by: Steven T. Ng
     Article City

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How Option Trading Profit In Any Market Conditions

By: Jason Ng

All stock market multi millionaires must be able to profit under any kind of market conditions. If you are able to profit only when stock markets go up, then you will find it a gargantuan task to ever have any sustainable success, much less become a stock market millionaire.

Yes! It is possible and easy to profit whether stocks are up, down or sideways using option trading. If the ability to trade all kinds of market conditions is the doorway to becoming a stock market millionaire, then option trading would be the very key.

In this article, I will outline some common ways by which you can profit from all kinds of markets by option trading. For more free option trading information, you may wish to visit www.OptionTradingPedia.com.Simple Option Strategies for Up MarketsBuy Call Option - You could buy the same number of equivalent stocks for a fraction of the price using call options and profit when the stock goes up. If the

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