By Jud Pyle, CFA, chief investment strategist for the Options News Network
Investors looking to buy call options in
have a plentiful supply, thanks to at least one call-seller boosting volume today.
In midday trading Tuesday, around 10,000 July 18 calls traded at $1.25 with stock at $18. This hefty volume compares to current open interest of just 12 contracts at this at-the-money strike. The July 18 calls have declined 10 cents on the day, computing to an implied volatility of 42.8. Normal daily volume for SCHW options overall is around 8,800; more than 13,000 contracts have changed hands across all options series with less than an hour left in the trading day.
Charles Schwab is among four online brokerages that received a pat on the back today from Raymond James analyst Patrick O'Shaughnessy, who upgraded SCHW to "outperform" from "market perform." Charles Schwab shares climbed 5 cents to $18.05 in afternoon trading after dipping to $17.83 around 10 a.m. EDT.
SCHW stock has not hit a 52-week low since March 5 (when the shares hit $11.34), but after trending higher for the last couple months, call-selling activity suggests that some investors are not convinced the stock will gain much further.
SCHW did not report any significant news today that might instigate call-selling activity. On Thursday, the company reported a 30% drop in profit to $2.2 million from $3.1 million in the fourth quarter last year.
Charles Schwab earnings per share dropped to 19 cents in the first quarter from 26 cents in the same period last year. The company's earnings-per-share figures are expected to drop to 17 cents a share in the second quarter, according to analysts' estimates.
Call-selling activity such as this does not mean investors should run out and sell their SCHW shares. It is noteworthy that even though one analyst said strong trading volumes could bolster profits for online brokerages, at least one investor could be betting that SCHW stock will close below $19.25 come July expiration.
Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."