Given the question, “Who benefits from extreme market volatility?” your first response, I presume, would be High Frequency Traders. If you spent a little more time thinking about that question though you would be missing out on some very clear and obvious parties that stand to benefit as well. In fact most individuals reading articles on this very website use the services that stand to benefit. Brokerages that charge a fee for making trades and appeal to a large mass of investors such as Etrade Financial (NASDAQ:ETFC) and Charles Schwab (NYSE:SCHW) are poised to benefit the most. However, ETFC has much more going for it then SCHW does and choosing ETFC over SCHW would be the correct move.
ETFC has been experiencing a tremendous explosion in volume as of late due to the impending European doom. Investors who were traditionally strictly long investors have been forced to become more agile in lieu of rapidly fluctuating markets. The extraordinary swings in the market have coerced participants to move in and out of positions quickly. Each transaction, buy or sell, is another fee for ETFC.
The ultimate potential upside for ETFC is in the fact that Citadel Hedge Fund, the largest shareholder, is pushing for a sale of the company. Citadel owns nearly 10% of Etrade shares outstanding. Many parties including SCHW and TD Ameritrade (NASDAQ:AMTD) have openly expressed interest in such a deal. Goldman has been working with ETFC and is still putting together its findings on whether the deal is ultimately executable. It is my belief that this deal is going to happen and is a certainty. It is merely a factor of when not if. The whisper price previously was around $16 a share.
ETFC should be on any active investor's mind as a possible position in their portfolio. I don’t believe people should buy today because of the enormous 5%+ moves the stock can make depending on the headlines. Given a week or two shares will be cheaper based on some headline regarding Greece or Italy. I would add a half position at a price point around $10.00 and if the stock retreats back to the $9.25-$9 level I would double my position.
Disclosure; Long ETFC with a considerable amount of shares. If the vote to sell the company arises I fully intend to vote in favor of such a decision.