Option Trade 
Charles Schwab Corp (NYSE:SCHW) Calls 
Wednesday, November 25, 2015

**OPTION TRADE: Buy the SCHW Jan 2016 33.000 call (SCHW160115C00033000) at approximately $1.80. Place a pre-determined sell at $3.60.

Note: No protective stop losses added -- but if you wish to do so make it $0.70.

by Ian Harvey

November 25, 2015

Charles Schwab Corp (NYSE: SCHW), a savings and loan holding company, will be on the benefitting end of a rate hike – which is very likely to occur in December.

The Fed could announce a rate hike at the end of its next policy meeting on December 16th, which will be especially good news for Charles Schwab Corp. One particular stock in this sector climbed 65% in a little over two years after the last rate hike.

Charles Schwab Corp has a 50-day moving average price of $30.53 and a 200-day moving average price of $31.73. Charles Schwab Corp has a 52-week low of $25.43 and a 52-week high of $35.72.

The firm has a market cap of $43.81 billion and a PE ratio of 33.62. The Average Volume of the company is at 9.47 Million with the Outstanding Shares of 1.32 billion. The Beta of the company stands at 1.53 with the RSI (Relative Strength Index) of 65.37.

The last U.S. rate hike was June 29, 2006, when Ben Bernanke and the Federal Open Market Committee (FOMC) raised the federal funds rate one-quarter point to 5.25%.

Markets peaked a little over a year later, climbing another 25%. The stocks that benefitted the most in that time were banks and brokerages.

A lot of these firms’ profits rely on higher interest rates. As the Treasury rate climbs, most businesses see the cost to borrow money increase, which puts a damper on profits. But when you are on the other side of that coin, like banks and brokerages, you see your profits actually increase.

And the banks and brokerages that stand the most to gain are ones that are a bit of both…

Charles Schwab Corp. is just that. It’s a bank by default, with a few branches scattered among the United States. But its brokerage service is where it stands to rake in the profits.

Charles Schwab is one of the world’s fastest-growing brokerage houses. It added an average of 80,000-plus gross accounts every month in 2014.

Tack this upcoming Fed-driven jolt of money into an already growing company and that should equal a higher stock price for SCHW by the end of 2015.

The Charles Schwab Corporation released its monthly activity report for Oct 2015. The company recorded net new assets (bought by existing as well as new clients) of $10.5 billion, up 33% from the prior-year month but down 11% from the preceding month.

Further, total client assets summed $2.54 trillion, up 4% from Oct 2014 and 5% from Sep 2015. Additionally, the client assets, receiving ongoing advisory services, totaled $1.27 trillion for the month, increasing 4% year over year and 5% from the prior month.

As of Oct 2015-end, Schwab's average interest-earning assets amounted to $165.4 billion, increasing 17% from Oct 2014 and 2% from Sep 2015.

Schwab opened 88,000 new brokerage accounts, up 16% from the Oct 2014 level and 10% from Sep 2015. Further, the company's active brokerage accounts totaled 9.7 million, increasing 4% from the prior-year month and almost at par with the previous month.

Clients' banking accounts totaled 1.03 million, growing 4% year over year and almost stable with the preceding month. Also, Schwab reported 1.5 million corporate retirement plan participants for Oct 2015, up 6% year over year and 1% from the prior month.

Looking ahead to future earnings growth, analysts are expecting The Charles Schwab Corporation to report earnings per share of $0.39 for the quarter ending on 2015-12-31. This is the consensus EPS estimates based on the 12 brokers taken into consideration.

There are 9 analysts that have rated a strong buy rating to the company, and one with a buy.

Charles Schwab Corp had its price objective boosted by equities researchers at Deutsche Bank from $37.00 to $39.00 in a note issued to investors on Monday. The firm currently has a “buy” rating on the stock. Deutsche Bank’s target price would indicate a potential upside of 16.98% from the company’s previous close.

The company presently has a consensus rating of “Buy” and an average price target of $35.77.

Harvey’s Options Volatility Indicator


Schwab is well positioned to benefit from improving broader trends in the investment brokerage industry as well as diversified revenue streams, enhanced equity markets and management's efforts to boost the client base in advisory solutions.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the SCHW Jan 2016 33.000 call (SCHW160115C00033000) at approximately $1.80. Place a pre-determined sell at $3.60.

Note: No protective stop losses added -- but if you wish to do so make it $0.70.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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