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Today marks a second consecutive session of downward price action and unusually high put activity for Charles Schwab Corp (NYSE:SCHW), which may be attributed to declining interest rates following the Federal Reserve's decision to delay scaling back its pace of bond purchasing. Specifically, the financial services firm has dropped 6.3% since yesterday's opening bell to trade at $21.17. Meanwhile, 11,000 puts -- more than 10 times the intraday norm -- have crossed the tape thus far, compared to Wednesday's total put volume of 25,000, which registered at 35 times the daily norm.
While yesterday's put players tackled the September 22 strike, today's bearish bettors are circling the September 21 strike, where more than 7,300 contracts have changed hands for a volume-weighted average price (VWAP) of $0.20. The majority of the puts went off at the ask price, suggesting they were purchased. In addition, implied volatility has ticked higher, and volume exceeds current open interest levels at this strike, collectively pointing to the initiation of fresh long puts. Plus, data from the International Securities Exchange (ISE) confirms at least some of this is buy-to-open activity.
By purchasing these near-the-money options, today's put buyers anticipate SCHW will breach the breakeven rail of $20.80 (strike price less the VWAP) by tomorrow's closing bell, when the options expire. The chances of this option moving into the money ahead of expiration are roughly 2-in-5, as its delta currently sits at negative 0.37, or negative 37%.
Should SCHW fail to make the expected slide south of the 21 strike over the next one-plus day, the most the put buyers risk losing is the initial premium paid, for which they were willing to pay a pretty penny. SCHW's Schaeffer's Volatility Index (SVI) of 31% ranks higher than 78% of other such readings taken over the past year, indicating short-term options are more expensive than usual, relatively speaking.
Of note, Charles Schwab Corp (NYSE:SCHW) had enjoyed a nice run on the charts, up until its recent downturn. Since the beginning of the year, the stock has tacked on 47.4%, outperforming the broader S&P 500 Index (SPX) by 26.5 percentage points. In light of this, some of today's activity at the September 21 put could represent shareholders picking up options-related insurance against a steeper short-term pullback.
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