Weekend Trader Series
November 27, 2022
Open Positions Update
- Close the Walt Disney (DIS) January 20, 2023, 105-strike put on Monday, November 28. Close the position at a limit price within the range of the current market price when you place the order.
The following is this week's recommendation:
Charles Schwab (SCHW)Place a limit order to buy the Charles Schwab (SCHW) February 17, 2023 70-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, November 25, this option was offered at $13.65. SCHW closed at $81.61 on Friday, November 25.Do not attempt to enter this position after Monday's close.Please use the following guidelines to manage the position:- Exit the position if the option is at a 100% gain from your entry price.
- If the option has not reached its target profit by 3:00 p.m. Eastern time on Tuesday, December 27, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
The shares of Charles Schwab (SCHW) staged a late-October breakout above a trendline connecting lower highs since their January peak, and recently retested the $75 area. There was huge call open interest (OI) at the standard November expiration 80-, 82.50-, and 85-strikes, which acted as a lid following the security’s breakout. With these calls now expired, SCHW has rallied above November resistance at the $80 region, as well as the $150 billion market cap level.
Though analysts are already mostly bullish on SCHW, there is still room for upgrades, with seven of the 19 firms in coverage still calling Charles Schwab stock a tepid "hold." Meanwhile, short interest hit a two-year high in October. While shorts have already started to cover their positions, short interest remains 15% above the equity’s 2022 lows, meaning there is plenty of pessimism left to unwind.
At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SCHW’s 20-day put/call volume ratio peaked at 3.14 in mid-November, and is now sharply lower. Back in July, a peak in put buying similar to this one preceded a strong rally for the stock.
Our recommended February 70-strike call has a leverage ratio of 5.2, and will double in value on a 19.2% pop in the underlying shares.
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