Options Trading News

October 30, 2013  Wed 2:52 AM CT

Charles Schwab has been rampaging higher, and traders think it will keep on going.

optionMONSTER's Heat Seeker monitoring program detected the purchase of more than 17,000 January 20 calls for $3.30. A similar number of January 17 calls was sold at the same time for $6.15 against previous open interest, which suggests an existing position was closed and rolled up to the higher strike.

Calls lock in the price where shares can be purchased in the online broker, letting investors cheaply position for a rally. They apparently bought the 17s when SCHW was trading lower and came into yesterday's session with big gains. By adjusting the position higher they recovered $2.85 of their capital, while only lowering their delta to 0.85 from 0.99. That means they remain highly leveraged to upside in the share price. (See our Education section.)

SCHW rose 0.39 percent to $23.10, and is up 61 percent so far this year. It surged following a strong earnings report on Oct. 15, and has been holding its ground at five-year highs since.

Total option volume was 17 times greater than average in the session, according to Heat Seeker. Calls outnumbered puts by a highly bullish 570-to-1 ratio.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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