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Saturday, January 31, 2009

A Robust Rivalry for Options Oglers

CHANGE IS AFOOT—NOT JUST IN THE OVAL OFFICE, but for online brokers, too.

As our 14th annual review of online brokers shifts into gear, firms have started rolling out updates at a frantic pace.

NEWCOMER TRADEMONSTER (; also see Barron’s “New Broker Dives Into Rough Waters,” Nov. 3, 2008), is already spiffing up its site. It has added spreadMaker, an interesting and educational method for creating options strategies, and the Trade Simulator, which lets you tie your actual portfolio to simulated trades, using all the functionality available on the site.

The spreadMaker tool is accessed from any options-quote screen by clicking on any quote and then selecting “Create Spread” from the menu. You can build all kinds of spreads using drop-down boxes, available expiration dates, and strike prices. When building a spread, tradeMonster displays a risk graph, which shows your expected profit or loss, based on the price changes of the underlying stock. As you build a spread or change its parameters, the risk graph is updated immediately, giving you a quick visual image of the trade you’re considering.

I see quite a few spread-building tools during my tours of online brokers, and this one is unique and very easy to use. SpreadMaker lets you add stocks, puts and calls, and change expiration dates and strike prices, quickly. It even allows you to short a stock when creating a spread. Quotes get updated in real time, along with the accompanying risk graph. To enter an order from spreadMaker, you click on the “Create Order” button, and a trade ticket is filled out for you.

Wade Cooperman, tradeMonster’s CEO, sees the spreadMaker as an educational tool and believes that its real usefulness is in helping users understand what they can trade. “I don’t think anybody new to options trading understands what they’re doing until they start drawing risk graphs. Our tool makes it easy to say, ‘Here’s my risk, here’s my opportunity, and is the risk and reward balance OK for me?“‘

The Trade Simulator lets you play around with your current portfolio and see how, for example, trading some options against a stock that you hold can affect your risk and potential return. Each quote window now has a “Simulate” button, and when you click it, a box opens up in which you can create a position simulation. Simulated positions are highlighted in gold when you elect to see them combined with your actual holdings—so you can easily discern which items in your portfolio are really yours.

When making a simulated trade, your current buying power isn’t taken into consideration (or, of course, affected). This type of simulated trading, which blends your portfolio with possible trades, is a terrific training tool for people who are learning how to trade options.

FIDELITY CONTINUES TO BEEF up its research offerings in an effort to help investors make better decisions. A large percentage of the available research can be accessed without a Fidelity account at We covered some of the new pieces last month ("Fidelity Rolls Out Some Holiday Goodies,” Dec. 29), but especially appreciate the look at the various research firms available on the site, and the ways they differ from one another.

From the main page, if you select “Research” and then “Stocks” from the sub-menu, you’ll see “Explore Research Firms” as a link under the “Analyze Stocks” heading. This section offers information and education about the research firms available via the site.

The “Explore Research Firms” page shows what each firm does and how; and there are descriptions of the firms in a table that let you know about the different types of analysis available. In this table, you can find out which firms utilize analyst-driven methodology, and which use quantitative model-driven methodology for their stock recommendations. This section also has a “Wizard”—which lets you find research firms that match your particular preferences. In Wizard mode, you choose the methodology you prefer, the types of variables you want an analyst to consider (fundamental, technical, or environmental/social), and whether you are looking for value or growth. For instance, when I choose “Analyst-Driven” fundamental analysis, looking for value stocks, I am told that I should consider Zacks Investment Research. When I select quantitative models and technical analysis, I’m directed to check out MarketEdge and Recognia.

Another helpful new tool is the “Research Firm Scorecard,” which ranks the firms against their peers. Integrity Research has been generating report cards for Fidelity’s internal use for several years, and now they are available to Fidelity customers. The report cards contain three summary metrics, based on percentage returns over one, two and three years of Buys and Sells, as specified by a theoretical research portfolio. When a firm changes its rating from Hold to Sell, that equity is eliminated from the portfolio and the gains or losses are logged. Most of these firms work through several thousand stocks, so there are a lot of calculations involved. You can’t see these scorecards outside the Fidelity brokerage login platform.

Industry consolidation: How about the news that TD Ameritrade (, among the biggest online brokers, has taken over ultracool thinkorswim ( I’ll admit I didn’t see this one coming, although I’ve been expecting more online-brokerage consolidations for the past six months. TD Ameritrade has a history of bolstering its software development via acquisition, and given the huge interest in options trading (and the profits available to brokers in this market), I’m not surprised that they’d swallow a platform that is options-heavy. It’s a definite win for TD Ameritrade and its customers.

But how about existing thinkorswim customers? TOS’ corporate culture had the firm positioning itself as the place for the oddballs and characters, and now they’re coming under the umbrella of a huge company. TOS has been a platform that can turn on a dime and do an upgrade a few hours after its staff thinks up a cool new idea. Now, coming from a very large company, the updates will have to be part of a development prioritization methodology that’s huge—so can the constant innovation continue? We’ll keep an eye on it.

Published in Barron’s, January 26, 2009. 

Posted by twcarey on 01/31 at 03:17 PM
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Saturday, January 17, 2009

In Spirit of 2009, Research, Data on the Cheap

CONGRATULATIONS, YOU SURVIVED 2008. Making it through 2009, however, is likely to require some belt-tightening. In that spirit of frugality, we offer you a few electronic research resources you can check out for free.

THE NASDAQ DATA STORE ( has turned into a great bookmark for interesting market information. Although most of its products carry a fee, there are several in beta that you can access for free. No schedule is posted for implementing charges for these goodies, so take a peek while they’re free and see if they add value to your trading regimen.

The most recent is Nasdaq Market Pathfinders, which evaluates the buying and selling patterns of Nasdaq market makers, and suggests whether they’re giving off bullish or bearish signs. The results are displayed in a multi-colored bar chart that shows the behavior of certain traders, or pathfinders, whom the Nasdaq’s data-mining service has identified based on their ability to anticipate trends. It will tell you if they’re bullish or bearish, and the ratio of shares bought versus sold. Specific market participants aren’t identified; their trading activity is aggregated for the display. The information is updated every second for Nasdaq trades. The aim is to give Market Pathfinders’ subscribers a window on the behavior of the market makers, who can strongly affect a Nasdaq stock’s price.

Another freebie is Daily Share Volume, which offers a table of market participants’ trading activity at the end of each day. It shows both Nasdaq and non-Nasdaq-listed shares, and lets you customize the report by issue (stock ticker) and market participant. You also can specify a date range, so you can look at activity for a single day or for the past month.

This report can help traders route their future orders in a specific stock. For instance, on Jan. 2, the Citadel Derivatives Group handled the bulk of trades in Google—nearly three times as many as the No. 2 market maker, UBS Securities. What market maker you use will depend on pricing, which may come from the bigger market maker or the more personalized attention you get from a smaller one. The data can be downloaded into Excel, so you can slice and dice it to your heart’s (and portfolio’s) content.

The data come from trades executed on Nasdaq, as well as trade reports directly entered into the Finra/Nasdaq Trade Reporting Facility. The facility provides Financial Industry Regulatory Authority ( members another mechanism for reporting transactions that take place off-exchange. It is run under the auspices of Finra, but Nasdaq operates the facility on behalf of the self-regulatory body.

The third freebie is Nasdaq Trade Ads, which allows market makers to advertise, in real time, their trade and share volume in a stock. This particular program is probably of more interest to institutional investors, but those who make their own order-routing decisions might find it useful, too. Trade Ads shows which market makers are currently trading a particular stock and gives an indication of how large an inventory they hold in certain issues. Nasdaq Trade Ads includes trade and volume information for Nasdaq-listed and other stocks. Its current incarnation is designed to publicize market participants who are providing liquidity in the Nasdaq system.

Trade Ads displays a leader board, updated in real time, that can be viewed by stock or by market participant. The data presented, generated from actual trades placed on Nasdaq market systems, provide a real-time view of the trades that later go in to the Daily Share Volume report.

The Nasdaq Data Store has quite a few other tools that each cost individual traders $5-to-$15 a month, plus several discount packages that group together tools. One of my favorites is Velocity and Forces, which measures levels of pre-trade order activity to calculate the intensity of trading interest and relative buying versus selling pressure.

YAHOO! FINANCE RECENTLY ADDED a currency center ( There isn’t much here that can’t be found elsewhere online, but the page offers a neat summary of currency-trading data, news and education all in one place. Educational materials, such as an article titled “Fundamental Factors that Influence Currency Values,” link to Investopedia, and are clear and concise without being condescending. You’ll find a glossary of currency terms and links to additional educational material from sources ranging from the Federal Reserve Bank of New York to, a beginner’s guide to forex trading. There is a table of currency-linked ETF quotes as well, which is a nice touch. And like the items mentioned above, it’s free.

OUR 14TH ANNUAL REVIEW of Online Brokers is getting under way, and reader input is a huge help in determining how we align our ranking criteria. What could an online broker offer that might persuade you to switch from a rival? If you don’t yet trade online, what keeps you offline? Let us know at . We’ve already heard from readers concerned about data quality, trade executions and their broker’s financial condition. Join in.

Published in Barron’s, January 12, 2009. 

Posted by twcarey on 01/17 at 03:15 PM
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Thursday, January 08, 2009

TD Ameritrade acquires thinkorswim. I did NOT see this one coming.

Here’s a press release that dropped in to my email box this morning.  I will do some follow-up with the appropriate parties next week.  In the meantime, here’s the news as it is presented by the companies involved, so it’s a little fluffier than what I would write. 

I am not surprised that TOS was acquired, even though they were taken over by Investools not so long ago.  I figured there would be a broker in the mix at some point, but didn’t expect that broker to be AMTD. 

-------------------------------- text of press release follows -----------------------------

Omaha, Neb. and New York, NY – January 8, 2009 – TD AMERITRADE (NASDAQ: AMTD) and thinkorswim Group Inc. (NASDAQ: SWIM) today announced that they have entered into a definitive agreement for TD AMERITRADE to acquire thinkorswim in a cash and stock deal valued at approximately $606 million as of Jan. 7, 2009.(2) This acquisition underscores TD AMERITRADE’s position as a successful industry consolidator.

thinkorswim is among the fastest growing online brokerage firms and has unique trading and investor education capabilities, particularly for the fastest growing segment of the industry – options trading.(3) Over the 12-month period ended Sept. 30, 2008, the company generated $380 million in revenue and $87 million in pre-tax income. It has approximately 87,000 funded retail brokerage accounts, each placing approximately 176 trades per year, more than $3 billion in client assets and more than 375,000 education graduates.(4)

Extending our Market Share Leadership
TD AMERITRADE is the current industry leader in the number of equity trades placed each day, and thinkorswim currently leads the industry in retail options trades placed each day. The combination of these two complementary firms will enhance the Company’s position, making TD AMERITRADE the new industry leader in the number of options trades placed each day.(1)

Advancing our Growth Strategy
This deal advances TD AMERITRADE’s growth strategy for its active trader client segment by introducing new trading functionality for traders, including advanced options trading, futures, foreign exchange trading and portfolio margining. TD AMERITRADE is uniquely positioned to leverage the Investools education offering as an acquisition channel and to help deepen the relationships it has with its nearly seven million existing retail client accounts. The Company plans to expand the offering over time to include programs for long-term investing, helping to further drive its asset gathering strategy.

“This transaction is directly aligned with our growth strategy, creating scale for the trading side of our business and, more importantly, advancing our trading strategy by several years,” said Fred Tomczyk, president and chief executive officer at TD AMERITRADE. “The thinkorswim team is very talented, and their innovative approach has led to outstanding achievements in technology and education. Together, we will extend our leadership in the industry with a best-in-class platform for traders, investors and registered investment advisors.

“We have a strong, stable balance sheet. We are well-capitalized. We have strong cash flow – all of which put us in a unique position to be opportunistic in the current economic environment,” Fred Tomczyk continued. “This transaction will improve our competitive standing in several key areas and position us for greater success and enhanced growth prospects. It is consistent with our strategy to improve our competitive position in this environment and manage for the other side of the cycle.”

“We are excited about this transaction with TD AMERITRADE, as it will provide a premium to our current share price for our shareholders and access to a wider range of Web and software-based trading and education technology for our clients. It is also an opportunity for our employees to contribute to accelerated growth at TD AMERITRADE,” said Lee Barba, chairman and chief executive officer of thinkorswim. “We believe this combination will enhance the Company’s leadership position in the investment services industry by providing the kind of highly compelling trading technology and education-based services that investors demand in today’s rapidly moving markets.”

High-Value Clients
This combination will add a fast-growing, highly active and engaged group of thinkorswim traders to the TD AMERITRADE family, which is reflected in the data highlighted below:(4)

Industry-leading growth rate, including a 161 percent increase in Daily Average Revenue Trades (DARTs) and an 82 percent rise in client accounts;
Approximately 49,000 DARTs, for a combined, pro-forma total of 350,000 trades per day; and
Approximately 37,000 options trades per day, for a combined, pro-forma total of 73,000 options trades per day.

thinkorswim clients should expect no immediate impact to their accounts or how they trade. All clients will receive more detailed information about what they can expect from the combined company after the acquisition is completed.

Terms of the Transaction
The principal terms of the transaction include the following:

TD AMERITRADE will acquire thinkorswim for approximately $606 million, which includes $225 million to be paid in cash and the issuance of approximately 28 million shares of TD AMERITRADE common stock to thinkorswim shareholders.(2) At closing, each share of thinkorswim will be exchanged for $3.34 in cash and 0.3980 of a TD AMERITRADE share. This represents a 46 percent premium based on the 30-day average exchange ratio, and a 29 percent premium based on the 90-day average exchange ratio.
TD AMERITRADE intends to initiate a new stock buyback program that will equal the approximately 28 million shares issued in the acquisition.
TD AMERITRADE expects the transaction to be accretive by approximately three to seven percent of fiscal 2010 GAAP earnings and 10 to 15 percent 12 months following the completed integration, which includes the benefit to be received from the intended buyback program.
TD AMERITRADE will retain key members of thinkorswim management. Mr. Barba will have an active role in the transition, and thinkorswim founders Tom Sosnoff and Scott Sheridan will join TD AMERITRADE after the transaction closes.

The transaction is subject to approval by thinkorswim stockholders, regulatory approvals and customary closing conditions.  TD AMERITRADE and thinkorswim expect the deal to close within the next six months.

(1) Source: Based upon the reports filed publicly by TD AMERITRADE, E*Trade, Schwab, optionsXpress, Fidelity and thinkorswim for the 12 months ended Sept. 30, 2008.  TD AMERITRADE DARTs do not include non-revenue generating mutual fund trades.

(2) The estimated total transaction value is based on the closing price of TD AMERITRADE common stock on Wednesday, Jan. 7, 2009 and the number of fully diluted thinkorswim common shares outstanding at the offer value on Jan. 5, 2009.  The purchase price for accounting purposes will be determined upon the closing of the acquisition and will depend on TD AMERITRADE’s stock price and the number of thinkorswim shares outstanding at that time.

(3) Source: thinkorswim and competitor company filings as of Sept. 30, 2008

(4) Source: thinkorswim company filings for the 12 months ended Sept. 30, 2008. The growth rate referenced for DARTs was calculated comparing the average retail DARTs for the 12 months ended Sept. 30, 2008, to the average retail DARTs for the 12 months ended Sept. 30, 2007. The growth rate referenced for accounts was calculated comparing the number of accounts on Sept. 30, 2008 to the number of accounts on Sept. 30, 2007. Any pro-forma totals represent the combination of thinkorswim and TD AMERITRADE company filings for the last 12 months ended Sept. 30, 2008.

(5) TD AMERITRADE, Inc., member FINRA ( /SIPC (, receives clearing and custodial services from TD AMERITRADE Clearing, Inc., member FINRA/SIPC. TD AMERITRADE, Inc. and TD AMERITRADE Clearing, Inc. are subsidiaries of TD AMERITRADE Holding Corporation.

(6) More information on the Forbes award is available at

Posted by twcarey on 01/08 at 07:50 AM
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