EOT Trade Alert – June 1, 2012

| June 1, 2012

June 1, 2012

Trade Alert:

  Buy SCHW July 2012 $12 Call options for $0.90 or better

Company Background:

Charles Schwab (SCHW) is perhaps best known for its discount-brokerage business. But these days the company is about much more than just a cheap trade.  Since its beginning, the firm has spread the gospel of investing across America.  And now, the company runs a large network of brick-and-mortar brokerage branch offices as well as a well-established online investing platform.  It also operates a bank and a proprietary mutual-fund business.

Short-Term Catalyst:

Shares of Charles Schwab have recently fallen over 15% on the heels of ongoing global and domestic growth concerns.

Now, it’s certainly known that SCHW has struck out with its attempts to move into the private-banking business through the acquisition of US Trust.

However, after this failed deal, SCHW came in and purchased optionsXpress, an options-focused online trading platform.  This transaction has a long term potential to create shareholder value by helping Schwab make further inroads among options-oriented retail clients.

Now looking forward…

Charles Schwab is holding up fairly nicely in this erratic market.  And I think a big part of this has to do with the technicals.



You see, according to the chart, SCHW is attempting to put in a near-term bottom. The stock is one of a very few financials that has been able to hold support near its 200-day (chart line) moving average after the recent sector-wide flush out.

Then, the stock fell slightly below key support near its flat-lining 200-day average before mounting a shallow bounce.

One thing to be stressed is selling pressure remained well in check for most of this month.

To top it all off… Charles Schwab has other positives as well.

As soon as the Federal Reserve starts raising interest rates, SCHW earnings will be primed for a boost.  The reason is because this will directly affect its banking and investment fee business.

In addition, the company’s acquisition of optionsXpress will give SCHW a much stronger position in a profitable segment of the online-trading business, options investing.  This will now give SCHW two tradable platforms.  One for more conservative stock and mutual fund investing and the other for fast paced stock and options traders.

Bottom line…

With the stock market erratic, the need for trading capabilities for both conservative and aggressive investors is more important than ever.

So, with earnings poised higher and the acquisition of optionsXpress, SCHW is certainly poised higher.

What we need to do now is buy some call options to capitalize on all of Charles Schwab’s positive news going forward.

Trade Details:

Underlying Stock Symbol: SCHW
Current Bid-Ask Price: $0.70 – $0.80
Option “Buy Up To” Price: $0.90
Break-Even On Stock At Expiration: $12.90
Maximum Risk Per Contract: $90


Exit Strategy:

SCHW is trading at $12.20 per share.

This is very important.  This option is already in the money.  The reason for using this strike is due to the slow and steady movement SCHW has shown in the past.  The way this option will move will be closely correlated with the stock.

Resistance will be at $13.20 and again at $13.60.  Don’t forget, we want this stock to move higher.  Support levels will be at $11.70 and $11.20.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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