“More and more people are trading options. Ordinary investors just like you. Back on September 8th I interviewed the CEO of OptionsXpress, OXPS. With the stock at $16.94. Now after reporting a genuine up side surprise today, the stock’s at $17.84, up 5.3% from where I recommended it. I think OXPS is the best and purest way to play the trend of increased options trading without actually using options. Now, while I don’t talk about options because they can be difficult to understand and dangerous if you don’t know what you’re doing. I also believe that using options the right way is the single smartest, and yes, most conservative way to invest. Giving you more percentage up side than owning common stock with less risk…” — CNBC’s Mad Money 10/20/2009

Cramer interviewed the CEO of OptionXpress (OXPS) David Fisher on Tuesday night after his firm reported earnings per share of 28 cents; 2 cents better than consensus estimates.  They discussed options trading which is not a usual topic of conversation on Mad Money mainly because much of Cramer’s audience does not fully understand options which can be dangerous if misused.  The biggest takeaway was that investors are trading options with more frequency than ever before.  OptionsXpress has the online platform best able to take advantage of the increased activity with options trades that make up 59% of its volume.

OXPS At Ockham, we are slightly less bullish on OptionsXpress than is Cramer as it has appreciated significantly since we had an Undervalued rating on it.  The stock now rests in our Fairly Valued range and we are seeing some slowing in OptionsXpress’ growth.  For example, the company increased trading volume at a very rapid rate in the early part of this decade, but due to increased competition and slower account creation that growth has subsided.  Comparatively speaking to other large brokerages OptionsXpress is still a fairly small player with less than 10% of the client base as a Charles Schwab (SCHW), which we would’ve hoped would allow this rapid growth to continue.

Our Fairly Valued rating comes with an expected price range of $17 to $26, so our methodology does see some upside potential.  Furthermore, the company is not trading at an expensive multiple on this year’s earnings estimates at just a shade over 17x.  Fisher talked about enhancing education on options trading on their platform, which is a solid start.  However, in order to reinvigorate the growth, we believe they ought to try educating traders beyond their platform because traders already on OptionsXpress are probably already familiar with options.  Options are a great tool for investors to use, and it is in the best interest of OXPS to get more retail investors comfortable with trading them.

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