E-trade Offers Great Example of Extreme Price Volatility
Posted by Blain Reinkensmeyer
November 13, 2007 at 8:02 pm
The recent price activity and news has caused E-Trade Financial (ETFC) to experience what can be classified as extreme price volatility.
Last Friday November 9th, 2007 E-Trade stock closed at $8.59, and yesterday the stock fell 58.7% to finish the day at $3.55. Then, today the stock shot back up 40.9% to $5.00 even.
What caused these price swings?
The 58% drop came due to the online broker announcing they have massive subprime mortgage losses to write off. Citigroup (C) analysts went as far as to say the company should claim bankruptcy. Then today the nearly 41% jump came with rumors E-Trade is now a strong take over target for a competitor.
Here is a visual of the recent price action of E-Trade:
E-Trade traded 295,280,000 shares yesterday, and 233,572,200 shares today. This is some 15x its average of 22 million shares per day.
Making millions
For some investors this drop off was expected, with those who were short making an absolute killing. E-Trade has been publicly known for an extremely long time to have significant interest in mortgages.
Staying focused on the trends could help you find the next big unknown price drop or surge.
The bottom line
Extreme price volatility is for some a traders delight and for others a big fright. Imagine waking up and finding your position down 30, even 40% or more.
E-Trade dropped nearly 60% in one day then followed the next with over a 40% move back to the upside.
Though extreme price volatility is rare, having yourself ready for when history repeats itself can make you big money or literally save your investment career.
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The trading action in ETFC has been quite amazing. In fact the action in other huge market cap stocks has amazed me. 10% gains or losses in huge companies like AAPL, FCX, RIMM, etc is becoming the norm.
This is the reason I feel more comfortable daytrading
WMT also gave momentum traders the bird today. I agree with you Bubs, day trading almost seems safer at this point.
This is also a great example, to see why tecnical analysis shoud be combined with the fundamentals. You sure want to know when things like this is going down..Just like when Ericsson went down. It happens extremly fast.
absolute insanity for one of the big online retail investment companies. I’m sure the options market on these guys was absolutely crazy!
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