Thomas Peterffy ILLUSTRATION: BLOOMBERG NEWS Forget about Dow 23,000. What matters more than milestones is identifying investments that can prosper in a low-volatility market and thrive when high volatility returns. It isn’t easy to unearth those opportunities, which is probably why Interactive Brokers Group (ticker: IBKR) isn’t better known. The company reported strong earnings last week, and though the stock is up some 35% this year, investors arguably don’t fully appreciate the strength of the business. For the first time, the company’s operations are free of a capital-intensive, market-making unit that should let investors more clearly see the company’s power. In late September, Two Sigma Securities, part of a giant hedge fund, completed the deal to buy Timber Hill. Interactive Brokers is now essentially a muscular, electronic brokerage firm that offers, among other attributes, a pure play on higher volatility. If stocks drop, and the CBOE Volatility Index, or VIX, reverts from about 10 to its long-term average of about 19, Interactive Brokers should perform exceedingly well as most other stocks struggle. Higher volatility usually encourages investors to trade more, which means Interactive Brokers should make more money during a crisis. “Investors view IBKR as a play on higher volatility with somewhat limited downside,” said Sandler O’Neill’s Richard Repetto. During the third quarter, Interactive Brokers reported revenue of $426 million, up from $345 million in the year-ago quarter. Earnings per share of 44 cents exceeded the consensus estimate of 38 cents. We have recommended Interactive Brokers stock since it traded in the $20s. Our view remains animated by respect for Thomas Peterffy, the company’s founder, chairman and chief executive. A self-made Hungarian immigrant, Peterffy long ago harnessed technology so he could better trade options for himself when he just owned and operated the Timber Hill trading firm. He then used what he had learned to build Interactive Brokers, which delivers institutional-quality trading technology to investors at essentially wholesale prices. We think Peterffy is preparing to seriously challenge major banks, including Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo (WFC), in the same way he used technology and low fees to disrupt the businesses of traditional brokerage firms. On the investor call after the earnings release, Peterffy offered a hint of the future. He talked about the firm’s just-released debit card, and noted that clients can now borrow, save and invest without leaving the Interactive Broker’s platform. The card is available in America, and will be introduced in Europe and Canada in the next six months, then Asia. THE INTEREST RATE on the Interactive Brokers debit card is simply astounding. Investors can borrow money at interest rates of 1.41% to 2.66%. This foray into banking isn’t fully appreciated by investors and, arguably, neither is it reflected in the stock price. Investors have three primary choices in situations like this. They can simply buy stock; sell puts and hope to buy stock on a decline; or they can use the “half-and-half” strategy to build positions. If investors want to hold 1,000 shares, they would buy 500 shares and sell five puts. With the stock at $49.05, the December $48 put could be sold for about $1.10. If the stock declines below the put strike price, investors are obligated to buy shares. If the stock advances, investors can pocket the put premium, and do the trade yet again. Regardless of the chosen approach, it’s likely investors will find that Interactive Brokers is a company with a lot of blue sky in front of it. STEVEN SEARS is the author of The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails.
TL,DR: THE INTEREST RATE on the Interactive Brokers debit card is simply astounding. Investors can borrow money at interest rates of 1.41% to 2.66%.
he should focus on improving the TWS. His customers would need to do a lot of work to automate their trading While ThinkorSwim has developed all the tools needed for automating tradings for their customers. All their customers would need to do is to use them. he needs to realize his customers are traders not programmers. As a service provider, he'd need to provide the tools and facilitate his customers' requirements.
The tools seem to work relatively well for the majority of customers as is reflected in their increased revenue. Nowadays a trader has to also know programming to automate, that's just how it is. It's not overly complicated either, one just needs to put in the effort to learn. IB should rather focus on lowering fees (they're not cheap) and not spend so much time focusing on beginners.
It was a gem @ 15 and 12 p/e. But here @50 and 40 p/e,not sure I am in a rush to buy it. Its a solid firm and market is bullish right now, so it might go higher, but paying 40 p/e for a brokerage is a bit too much if you ask me.
I think if you go with their FIX solution it isn't half-assed at all. The TWS API is a bit cobbled together since you have to have the application running to access the API, but that said it seemed to work well enough when I used it as long as I didn't allow TWS to upgrade. I agree with d08, the API is the least of IB's issues if it's an issue at all.