Options Traders Brace For a Schwab Stock Swing

Charles Schwab is set to report its first-quarter earnings early next week

Managing Editor
Apr 13, 2018 at 1:53 PM
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Investing giant Charles Schwab Corporation (NYSE:SCHW) is set to report its first-quarter earnings early next week. SCHW has finished lower the day after earnings in each of the past six quarters, but typically not by a lot -- the stock's average post-earnings daily price move is 1%, on average, over the last eight quarters. This time around, the options market is pricing in a larger-than-usual 3.3% next-day move, per Trade-Alert.

In fact, 30-day at-the-money implied volatility on SCHW options stands at 31.1%, in the 93rd annual percentile. And Schaeffer's Volatility Index (SVI) -- which is currently measuring Schwab's front-month April implieds -- weighs in at 36%, in the elevated 68th percentile of its annual range.

Charles Schwab stock has declined more than 11% since hitting an all-time intraday high of $58.11 in mid-March, and today, the shares are continuing a three-week stint below former support at their 80-day moving average. The $50 level, which was initially toppled by the equity's Dec. 4 bull gap, has emerged as a foothold for the shares over the past few weeks. SCHW is down 0.9% at $51.29, at last check -- hovering just below its April 1999 high and its year-to-date breakeven level.

Ahead of earnings, options traders have been bracing for more downside. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SCHW's 10-day put/call volume ratio of 1.75 ranks in the 85th annual percentile -- meaning puts have been bought to open over calls at a faster-than-usual clip.

While volatility expectations are looking a little frothy in advance of the firm's first-quarter results, it's worth noting that Charles Schwab stock has handily rewarded premium buyers over the past year. SCHW currently sports a Schaeffer's Volatility Scorecard (SVS) of 78 out of 100, meaning the stock has tended to register bigger price swings than its options premiums have reflected over the past 12 months.

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