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Author: junkman02 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35387  
Subject: E*Trade’s Bonds Date: 4/20/2009 8:43 PM
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This is another deep, out-of-the-money put, half of whose premium you are likely to lose. How likely the loss is what needs to be estimated. If the odds are a coin flip or worse, then you back away. More favorable odds than random mean the trade should be done. Price your risks, and act accordingly.

Their yield-curve is negative. The short ratio on the common is 13.4% (and would probably be higher if the stock weren’t already trading under $5). Using my crude methods, I’d estimate a Chapter 11 workout at no more than $0.50 on the dollar at best, which is roughly what the bond market is saying, too, by the way it is pricing their debt.

The 7.875’s of ’15 would require a min purchase of five. The 7.375’s could be bought as a single bond. So they would be the maturity to focus on (unless you like “to swing a big line”, as Livermore would say). You’d be late to the trade, for prices already being off their March lows.

As usual, broker’s reported YTMs understate what I believe to be a better estimate of YTM’s. So run your own numbers, and do your other Due Diligence.


Issue Coupon Maturity YTM Price Cur Yld
E TRADE FINANCIAL CORP B2 B 8.000 06/15/11 34.3 62.100 12.9
E TRADE FINANCIAL CORP B2 B 7.375 09/15/13 28.3 49.100 15.0
E TRADE FINANCIAL CORP B2 B 7.875 12/01/15 24.1 47.600 16.5
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