We're in the middle stages of a stock bubble. And according to virtually everyone I speak to in the broker community, retail investors are beginning to pile in. Day in and day out, trading is ever more the norm.

The online brokers stand to gain, including E*trade Financial (ETFC), a company whose stock was crushed due to their ridiculous and costly entrance into the subprime mortgage market a while back. E*trade has recovered, business is recovering, and the stock is looking pretty cheap these days.

There are several reasons for this. Short term, new buy recommendations from analysts and serious speculation about a takeover have pushed ETFC into a strong technical position.

Short- and Long-term Trends are Intersecting at E*Trade Financial (ETFC)  

Now there is no solid, publicly-announced basis for a takeover -- with the exceptions that the poison pills designed to prevent a takeover have been removed, and the CEO is leaving at the end of this year. But option volume tells me that even if this is a rumor, it is a serious one, and, long term, the company has a good future.

E*Trade had a brush with death during the subprime mortgage crisis, but managed to survive and emerge, thanks to revenues that were driven by day traders.

And ETFC is a good acquisition target for a larger outfit with a better balance sheet.

So, with market volume light and individuals clearly out of the market (compared to two years ago), E*Trade Financial is a great contrarian call.

Buy the E*Trade Financial Corp. Jan (2010) 2.50 Calls (EUSAZ) at 35 cents or less using limit orders.

Let Michael Shulman help you make money on the short side of the stock market. Download a free copy of his new investing guide, Double Your Money — and Double it Again.