Bearish Charles Schwab Option Trading Volume Rises Before Earnings Report

Trading of bearish Charles Schwab Corp. options surged to a six-week high before the brokerage’s earnings report next week as an investor bet that the shares will fall 15 percent by January.

More than 17,300 puts to sell Schwab shares changed hands, 24 times the four-week average and nine times the number of calls to buy, yesterday in New York. The shares slid 0.7 percent to $14.15 to extend this year’s loss to 25 percent.

Almost all of the put volume was concentrated in January $12.5 puts, which rose 11 percent to 50 cents, after one investor bought 14,000 options in a bet the largest independent brokerage by client assets will fall 15 percent, to about $12, by expiration, according to Patrick Mortimer, director of options trading at Pipeline Trading Systems LLC in New Hope, Pennsylvania.

The “option buyer may be looking at the tough time the company has had recently and looking for protection ahead of next week’s third-quarter earnings release,” Mortimer wrote in a note yesterday.

Schwab, whose shares reached a one-year high of $19.88 in April before dropping to a low of $12.76 end of August, said in regulatory filing on Aug. 5 that trading commissions -- which account for one fifth of revenue -- fell 8 percent to $214 million last quarter from a year earlier. The decline resulted from the brokerage’s lower online fees, implemented in January, and less market trading activity, the San Francisco-based firm said.

Schwab is expected to report a third quarter profit excluding some costs of 13 cents a share on Oct. 15, according to a Bloomberg survey of 22 analysts covering the stock. That would be down from a profit of 17 cents a year ago.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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