Investor Brain

Saturday, April 02, 2011

OptionsXpress Gives Schwab a Leg Up

The smaller firm will bring better options tools and the possibility of integrated futures trading.

Charles Schwab’s $1 billion offer last week for midsize optionsXpress seems like a good move for the online-brokerage giant. The all-stock deal should allow Schwab to update the options tools on its Website and to integrate futures trading, helping it stay relevant in a very competitive technology race. The firm is choosing to buy the technology rather than build it, and also gets the chance to absorb optionsXpress’ nearly 400,000 accounts.

Charles Schwab’s (http://www.schwab.com; ticker: SCHW) recently released StreetSmart Edge platform, available only to frequent traders, is a huge improvement over the firm’s Website when it comes to researching and trading options (see “A Peek at Schwab’s New Trading Site,” Barron’s Electronic Investor, Dec. 20, 2010). However, the Street-Smart Edge tools aren’t incorporated into the Web platform.

OptionsXpress (http://www.optionsxpress.com) was a pioneer in bringing options-strategy searches to the retail trader, and rose to prominence on the strength of its tools. More recently, optionsXpress customers have been able to trade futures as well as stocks, options, mutual funds and bonds; this trading technology will be a welcome addition to the Schwab suite. Currently, Schwab customers have to open a separate account with the firm’s Lind-Waldock affiliate if they want to trade futures, which we’ve regarded as a pain. Schwab officials emphasize there will be no changes in the optionsXpress platform.

In Barron’s recent ranking of online brokers, optionsXpress garnered four stars out of a possible five, while Schwab merited 3½ ("Making the Right Connection,” March 14).

Unlike after many recent mergers, optionsXpress customers could see their trading costs drop once the firms are merged. Currently, Schwab charges $8.95 for stock transactions, $1 less than optionsXpress.

Although a group of optionsXpress (OXPS) stockholders, hoping to increase the price, has filed suit to block the sale, I would be surprised if this deal didn’t go through. The two firms appear to be following in the footsteps of TD Ameritrade’s (http://www.tdameritrade.com) takeover of one of our electronic favorites, thinkorswim. The latter was allowed to maintain a separate identity, although that could change later, when the clearing operations merge.

If you’re an optionsXpress customer (not stockholder), what are your concerns about this takeover, if any? If you already have accounts at both Schwab and options-Xpress, which one do you prefer? Let us know at electronicinvestor@yahoo.com
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A FREE IPHONE APP called Chaikin Power Tools was just launched. It provides trading signals on approximately 5,000 stocks. The app lets you set up your own watch list or select from a built-in industry list. If you pick, for example, conglomerates, you’ll see recent prices (20 minutes delayed) for the companies in the group, plus a proprietary Power Gauge which gives you a bullish (green), bearish (red) or neutral (yellow) signal. Clicking on a gauge provides additional detail, plus the ability to view a graph and see some basic information about the company. It’s free, and it’s fun. Check it out.

IN OUR RECENT READER MAIL was an inquiry about how to synthesize various financial Websites when seeking information on a particular company. We were tipped to the site http://stocks.overthefalls.com, which brings together pages from 14 different financial sites such as Yahoo! Finance, Seeking Alpha and Zacks for a chosen ticker symbol.

The service is free, and offers a very stripped-down interface. You type a ticker into the search box, click on the “Go” button, and wait a few seconds—how many depends on the speed of your Web connection. The content from each of the sites can be seen by clicking on the appropriate box on the left margin.

You’ll be introduced to some Websites, such as StockTA and J3, that you might not have seen before. StockTA offers technical analysis of stock-price movements, while J3 gives you a breakdown of a stock’s institutional ownership. If you don’t want to bother loading content from one of the sites built into the search, you can uncheck the box with the word “enabled” to the right. That can cut the time it takes to make the pages ready to view.

It’s a little bit buggy, however. I found that I had to close the browser window and reload overthefalls to get a different ticker symbol to load correctly. In addition, most of the ticker symbols I checked out eventually loaded the Seeking Alpha page—if I didn’t click on anything. Still, it’s an interesting little tool, and you can’t beat the price.

SEVERAL READERS HAVE ASKED if there’s a Website that can help them find preferred stocks, as they attempt to generate more income from their portfolio. One resource is the Preferreds Online site (http://www.epreferreds.com, which is run by the same group that publishes Bonds Online (http://www.bondsonline.com).

One intriguing feature of this site is the Relative Value Indicator, which shows whether the stock you’re mulling is cheap or pricey when compared with similar kinds of stocks. The site also shows historical credit ratings of the companies issuing the preferred stock. It’s a subscription service that will set you back anywhere from $10.49 for a one-day pass to $445 per year.

If you’re on a budget while looking for added income, check out Quantum Online (http://www.quantumonline.com), which isn’t as pretty as Preferred Online but is considerably less expensive. Actually, it’s free; however, the publisher is happy to accept contributions. To use the site, you have to sign up for a free log-in; it can take several hours for your password to arrive.

Upon logging in, you can search for securities related to a particular company by name or by ticker symbol. You can see the company’s current credit ratings, which are supplied by Moody’s and Standard & Poor’s. One resource I found helpful was an article entitled “What Income Investors Should Know.” It provided insights on what happens to preferred stocks in bankruptcy, what a redemption or call date is, and why some issues trade on the Over-the-Counter Bulletin Board, more commonly known as the “pink sheets.”

You can find lists of real-estate investment trusts, closed-end funds, limited partnerships, royalty trusts and a variety of other securities. As mentioned, it isn’t going to win any beauty contests, but it contains excellent data for income investors—and, once again, the price is right.

Published in Barron’s, 3/28/2011. 

Saturday, March 19, 2011

Making the Right Connection (2011 Online Broker Review)

After swerving between shocking growth as a toddler and a serious mood disorder as an adolescent, online trading is on the verge of a stable maturity. Today it appeals both to hyperactive traders and long-term coupon clippers, to stock and bondholders and foreign-exchange specialists, as well as to those willing to pay up for the latest gadgetry and those just trying to save a few bucks in commissions. Its ranks include asset-management giants like Fidelity and tightly focused specialists with names like TradeMonster.

It’s a big change since 1996, when Barron’s first reviewed online brokers. The top-rated firm that year was Lombard Online Brokerage, which morphed into Discover Brokerage a couple of years later before being purchased by Harris Bank. We were impressed with Lombard’s real-time quotes and account updates, a rarity at the time. Where are they now? HarrisDirect, Lombard’s descendent, closed down and was snapped up by E*Trade.

For our 16th survey we thought we’d try to do something a little different to reflect a more diverse marketplace of brokers and investors. We focused more on helping our readers figure out whether a brokerage is the right home for part—or all—of their portfolio. (Don’t worry, you can still find our favorites on the following pages.) From what we know, Barron’s readers tend to have a portfolio topping $1 million and trade on average 42 times a year; they also have several brokerage accounts. We’ve tried to keep that audience in mind in providing information.

Please click here to read the entire article and view the tables:  http://online.barrons.com/article/SB50001424052970203523604576188781715729822.html

Saturday, March 12, 2011

New Tools to Help Manage Risk

In preparation for our 16th annual review of online brokers, to be published March 14, we have spent the past few months investigating new services and tools from 24 firms. Four brokers we are studying are new to our review process.

So, what’s new this year? For one thing, brokers are offering more tools to help investors manage their risk. Several have also introduced money-management services, taking another step toward full-service brokerage capability. Notable among them is Charles Schwab (http://www.schwab.com), which acquired Windward Investment Management (now called Windhaven Investment Management), an advisory firm that managed nearly $4 billion in three broadly diversified portfolios invested primarily in ETF, or exchange-traded-fund securities. In March Schwab customers will be given access to these portfolios, at an additional fee that has yet to be disclosed.

Schwab (ticker: SCHW) is also offering five new Pimco-managed Municipal Bond Ladder separately managed accounts, expanding its fixed-income offerings. These are designed for people seeking tax-advantaged assets and income generation, particularly retirees.

E*Trade (http://www.etrade.com) also made a move into the managed-accounts arena, launching Managed Investment Portfolios, which offers one-on-one professional portfolio management of ETFs and mutual funds, with a minimum investment of $25,000. Another service, Unified Managed Accounts, is for clients with assets of $250,000 or more. This is a professionally managed wrap account that includes stocks, mutual funds and ETFs. E*Trade’s (ETFC) fees for this are based on the amount of money under management.

MANY BROKERAGES HAVE STEPPED up their efforts to court active stock and options traders. There has been a major push to offer additional tools for options traders, including education offerings to make newbies more comfortable.

Fidelity (http://www.fidelity.com) enhanced its options trading with additional research, including expanded volatility data. The site also includes the ability to model the profit or loss potential of an option strategy before placing a trade.

At tradeMonster (http://www.trademonster.com), more than 100 scanners were rolled out in a new LiveAction tool, which enables users to scan the universe of available options based on volatility, unusual activity, and fundamental and technical data.

Many brokers are launching new customizable trading platforms that open in a browser and can run on any computer. In the past, a user had to download a huge file and install a software platform to get this capability, and few of those programs ran on non-Windows systems. The new Web-based platforms are, for the most part, much better trading tools, and can be customized to fit your trading style.

A brand new brokerage firm, gxTrader (http://www.gxtrader.com), opened its virtual doors in late February. It won’t be included in the brokerage review because it is too new, but the trading platform might interest those who like a visual analysis tool.

GxTrader’s software, Visual Trader, comes from Nirvana Systems, and is version 8.0 of that analysis tool. It has trading capabilities built in. Getting started was somewhat difficult, as the program, which runs only on Windows, is a 70-megabyte download. It calls on several Microsoft Visual Basic libraries, which must also be downloaded. Once the program is installed, you’ll have to download another huge file to access the necessary historical data. In all, the process takes about an hour.

Visual Trader is designed to show movement and changes in momentum across a sea of trading opportunities. It displays a three-dimensional map that can be rotated and flipped. Industries are represented by circular disks, and individual stocks by cylinders. The color, width and height of each cylinder is generated by price changes and trading volume. A thick, tall, green cylinder would indicate a stock that is trending upward in price on heavy volume. A skinny red cylinder would represent a stock declining in price on thin volume. Clicking on a cylinder produces a graph of the stock’s price and volume changes over time. Click on the small “T” on the graph, and a trade ticket opens.

As of now only stocks, ETFs and options can be traded online at gxTrader; you must call a broker to trade mutual funds and bonds. Commissions are a half-cent per share, with no minimum, so a trade of 500 shares will set you back $2.50. Options commissions are 85 cents per contract. You’ll pay $99 monthly for the software, though that fee is waived if you trade more than 10,000 shares per month. 

Published in Barron’s, March 7, 2011.