This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Schwab Jumps Into Options

Stocks in this article: SCHW OXPS

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) - Charles Schwab (SCHW - Get Report) recently announced its decision to acquire optionsXpress (AMTD) in a friendly all-stock deal.

The deal is designed to help Charles Schwab compete with other firms like E-Trade (ETFC), Ameritrade (AMTD), Fidelity and Bank of America (BAC), which all have large online brokerage services and are vying to provide investors with the best tools and services.

The deal, which is expected to close by the third quarter of 2011, will cost Schwab $1 billion, and the company will issue 60 million shares, swapping each outstanding share of optionsXpress with 1.02 of its own share. Our $19.74 price estimate for Charles Schwab is at a premium of almost 12% to its current market value.

Retail investors with a higher risk appetite look at options as a simple yet effective way to speculate on certain securities or hedge existing positions. Options trading has become an indispensable tool for many investors and are increasing in popularity and so online brokerages want to retain these customers by offering them the ability to trade options as part of their service.

Recently, in a recent article , we discussed how Ameritrade , one of Schwab's oldest rivals, recognized the potential benefits from options trading much earlier than some of its peers as witnessed by its acquisition of thinkorswim in 2009.

Schwab's acquisition of optionsXpress will give Schwab access to the 379,000 client accounts and $7.9 billion in client assets which optionsXpress reported in 2010. This would add to Schwab's existing 8 million active client accounts and more than $1.6 trillion in assets. The deal was reportedly negotiated behind closed doors for quite some time and will now need the requisite approval of regulators as well as optionsXpress shareholders.

The announcement of the deal resulted in a 15% increase in optionsXpress's stock price while Schwab's shares barely budged. So is the implied message here that the deal is not going to add much value to Schwab actually true? We will look at this in a subsequent note. See our full estimates for Charles Schwab here .

Like our charts? Embed them in your own posts using the Trefis Wordpress Plugin.

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs