This is an excerpt from an article I originally published on Seeking Alpha on February 3, 2013. Click here to read the entire piece.)
On January 31st, Lender Processing Services (LPS) announced the company has settled with the attorneys general of 46 states and the District of Columbia over accusations of fraudulent practices in its mortgage loan default servicing, also known as “robosigning.” I have written in previous pieces that LPS was worth the bet that these issues would eventually get resolved in a favorable manner…{snip}
The reaction to the news was swift. LPS rose 7.3% for the day. I myself rushed in to buy call options and was surprised that overall option activity was very muted. There had also not been any unusual bullish or bearish activity going into this news unlike past episodes.
Source: FreeStockCharts.com
{snip}
Assuming LPS management continues to execute, the settlement puts in place rules that give LPS a competitive advantage. Financial firms can do business with LPS with extremely high confidence that the company will not get them into trouble. {snip}
In other words, the rules of engagement have become more clear in dealing with foreclosures. With this clarity should come more confidence in LPS’s business model.
Be careful out there!
This is an excerpt from an article I originally published on Seeking Alpha on February 3, 2013. Click here to read the entire piece.)
Full disclosure: long LPS call options