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Can Charles play catch up\?

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Shares of broker/dealer Charles Schwab (NYSE:SCH) $15.00 +2.38% have broken above their longer-term 200-day moving average today and offer the bullish options trader an attractive entry point for a bullish play as long as their willing to give the stock some time until April expiration. I like the break above the 200-day moving average as a reason for bears to be looking to cover some positions as the recent market strength may have some investors that have been waiting for some strengthening economic data to push them back into the markets.

Charles Schwab Chart - Daily Interval

After a two-week respite below upward trend, shares of Charles Schwab (SCH) are tying to make a break for higher ground. I like the April $15 calls (SCHDC) currently offered $1.10 and targeting upper level of retracement near $17.25. If we were to see a trade at $17.25 in the next several weeks, then the April $15's should be trading near $2.25 bid.

Broker/Dealer Index Chart - Daily Interval

Late last year, we actually played shares of Charles Schwab as bullish and felt it might be an early leader to a bullish move in the broker/dealers. The stock sure did seem to lead and got a bit ahead of the sector. Now it looks like SCH is lagging a bit, but that has us even more bullish the stock as a relatively lower risk/good return type of option trade with an April expiration. Not looking for a home run but if the stock plays "catch up" then should be profitable for traders. If the XBD.X can continue a bullish move to the January highs, then that should bode well for SCH too.

I would not be looking to use a stop on a $1 option trade as a simple $0.50 price fluctuation in the stock would have a trader stopping out with a 50% loss. As such, will profile with simple risk capital and NOT over leveraging. If you would normally buy 500 shares of the stock and risk $1 on the underlying common shares, the only buy 5 contracts and risk the $1 up front.

Jeff Bailey
Senior Market Technician
Option Investor

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