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Optimistic Schwab Traders Buck Recent Trend

Bulls swoop down upon SCHW's January calls

by 6/20/2012 9:46 AM
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The Charles Schwab Corporation (SCHW - 12.70) was the focus of some bullish options activity yesterday, as 4,064 calls crossed the tape, more than tripling the equity's average daily volume. Most popular was the near-the-money January 12.50 strike, where 3,628 of these calls were exchanged -- all of them at the ask price, suggesting they were bought. Meanwhile, open interest at this strike jumped by 2,890 contracts overnight, pointing to an influx of new positions. This option is now home to open interest of 12,655 calls.

However, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) paints quite a different picture among SCHW's buy-to-open crowd. The 10-day put/call volume ratio checks in at 7.82 -- indicating that traders have bought nearly eight puts for every call during the past two weeks -- while the 50-day put/call volume ratio stands at 3.66, signaling that puts have more than tripled calls over the last few months. These ratios, which arrive in the 94th and 97th annual percentiles, respectively, confirm traders have been snatching up bearish options over bullish at a much faster-than-usual clip.

This skeptical attitude toward SCHW seems to be prevailing on Wall Street, as well. The investment firm has secured only four "buy" or better ratings, compared to 10 lukewarm "holds," and one "strong sell" recommendation.

From a technical perspective, SCHW doesn't have too much to brag about, considering its year-over-year loss of more than 21%. The equity has also lagged the broader S&P 500 Index (SPX) by over 13% during the past 60 sessions. On the charts, the stock continues to trade below its 10-week moving average -- a trendline it has surmounted only once, on a weekly closing basis, since mid-April.


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