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October 26, 2006

OptionsXpress is new add to Cara 100, Thur., Oct. 26, 2006, 1:55 PM

Today I have added a relatively young and small financial services company to the Cara 100, OptionsXpress (NDQ: OXPS). I am struck by the impressive metrics, the user platform and the business (options trading) of this Chicago-based company.

This is a trading blog, so I figure rather than add another large cap financial services company to my Watchlist (Bank of America and Wells Fargo had been under consideration), I decided to go where long-term sustainable growth is more likely.

I only hope this small company does not get gobbled up for many years. This one reminds me of my old firm Qtrade Canada, which excelled from Day One. OptionsXpress, however, has a more specialized product, a much bigger market and less competition in the space.

The business is simple to understand: they offer an electronic trading platform for options traders. We know that is a business that is growing in leaps and bounds as independent traders become more sophisticated with the tools.

Thirty years ago, this was a business that didn't exist. When it was introduced 25 years ago, stock trading volumes zoomed as a result. Now, most large capital pools and even many individual traders use advanced, highly sophisticated options trading strategies. In future, as the tactics and the advanced platforms get better understood by the average Joe, I see blue sky for this company.

As to the quality of the technology, I have sophisticated options traders " former CBOE specialists " tell me it's pretty good stuff, and they use it. That's enough validation for me.

As to management, I haven't met any of them, but I see they sure aren't kids. These people have been around for years in the options trading business, and they have focused their efforts to what they know. I like that.

But the bottom line is the growth rates of revenues and earnings, and the high margins involved. Competition may cut in, but the market is also growing rapidly. This company has virtually zero debt, and no competitor today that matches up, so I don't see any reason why they cannot continue on the fast track.

As you know, a Cara 100 company may not be a fast-growth stock, but I have to like the financial strength, the operating metrics, management and the business model. This company has enough for me.

Now remember; a company is not a stock. I am not making any stock recommendation here " just telling you the company is going into the Cara 100 Watchlist.

OptionsXpress Holdings Inc [GICS 40, Cara 100 Oct 26 2006]
(OXPS: Yahoo Finance file)
(OXPS: StockChart chart)
(OXPS: Investertech chart)
(OXPS: ADVFN Financial Data)(OXPS: ADVFN Financial Data)

Posted by Posted by Bill Cara on October 26, 2006 01:55:41 PM | Category: Cara Global 100 Best Companies

Discourse

Thanks Bill. OXPS is my favorite small cap stock too. Unfortunately, I was shaken out in May and missed its rally recently.
Thank you for your HBM.

Posted by: SmallCapFan [TypeKey Profile Page] at October 26, 2006 2:12 PM [link]

Another junior miner I like is EZM. Do not mind taking a look at this Canadian miner and tell us what do you think when you have time?
Thanks.

Posted by: SmallCapFan [TypeKey Profile Page] at October 26, 2006 2:15 PM [link]

Another junior miner I like is EZM. Do you mind taking a look at this Canadian miner and tell us what do you think when you have time?
Thanks.

Posted by: SmallCapFan [TypeKey Profile Page] at October 26, 2006 2:16 PM [link]

I too like EZM especially since they recently announced a meger with Lundin Mines operating from Switzerland. Lundin turned profitable during their FY05 - they also have numerous Zinc mines throughout Europe. Lots of potential here but I will agree with smallcapfan - Bill's comments are always much appreciated.

Posted by: leewar [TypeKey Profile Page] at October 26, 2006 2:47 PM [link]

As a customer I can say that their platform is quite user friendly and the customer service is also good. The staff is knowledgeable about options so if you have an issue with an early assignment or some other problem arises they are able to help you out. I've heard bad stories regarding some other brokers that don't understand options, and as a result mess you up more when you get in trouble.

The commissions are quite reasonable; not the best amongst their peers but pretty good. I get free live streaming quotes, options chains etc. If you go to trade a specific strategy, say a butterfly, there's a special order form that allows that trade as a package versus trying to leg into the trade. It's easy to find the option symbols you're looking for and it's all clicking--reduces chance for error. Another thing I like is that they send out e-mail reminders a day or two before expiration if you hold in-the-money options.

Ned Bennett, the CEO, is a knowledgeable and articulate guy. Over the summer I saw him speak at a function where he was hosting a Q&A with some senior people from the CBOE, PHLX and the ISE. My impression was that he has a good working relationship with the major options exchanges and that he's aggressively on top of changes to the field in the future.

The last thing I'd like to put forth regarding competition is that there is a better broker that 'those-in-the-know' use. When they open up in Canada I will be switching there for a few reasons. The platform is even better and has more useful tools for the professional option trader, and that's the direction I'm moving in. Also, they offer better margin on certain types of trades--huge consideration for ROI. Friends I know that use this other broker also rave about the customer service and the level they'll go to. As far as I'm aware they are not publicly traded. None of this is a knock on OXPS, this other company just does some things better, if that's what you're looking for. My impression is that OXPS is a very good choice for the average retail trader. The other one comes more into play when you start to do higher level position management and such. The people that would go there are ones that do or want to trade professionally.

Posted by: BWB [TypeKey Profile Page] at October 26, 2006 3:21 PM [link]

BWB, would the other broker you mention be IB by any chance? IB just announced a "first for the trading industry": 1-cent bid/ask price resolution on options. http://www.interactivebrokers.com/en/penny/index.php?ib_entity=llc

This is excellent/significant news. It makes some strategies feasible for the first time. As more exchanges/brokers follow this trend, gone will be the days of large numbers of orders sitting either side of 5 cent chasm...

Posted by: Keith [TypeKey Profile Page] at October 26, 2006 3:58 PM [link]

No, it's not IB. I have some friends that use IB and while enamoured with the very low commissions there are other things they don't like about them.

This one is owned and run by former floor traders from the CBOE (and perhaps CME & CBOT) and is headquartered in Chicago. These guys understand options inside out and that's why they offer lower margin--they understand the real risk.

Posted by: BWB [TypeKey Profile Page] at October 26, 2006 8:16 PM [link]

I'm curious, so I'm guessing ThinkOrSwim....

Posted by: korvus [TypeKey Profile Page] at October 27, 2006 3:25 AM [link]

Yep.

Posted by: BWB [TypeKey Profile Page] at October 28, 2006 3:24 AM [link]

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