NEW DIRECTIONAL PUT PLAYS

Charles Schwab - SCHW - close 13.63 change -0.29 stop 14.42

Company Description:
The Charles Schwab Corporation (CSC) is a financial holding company. Through its subsidiaries, the Company engages in securities brokerage, banking and related financial services. As of December 31, 2009, CSC provided financial services to individuals and institutional clients through two segments: Investor Services and Institutional Services. As of December 31, 2009, the Company had $1.42 trillion in client assets, 7.7 million active brokerage accounts, 1.5 million corporate retirement plan participants and 722,000 banking accounts.

Target(s): 13.10, 12.85, 12.55
Key Support/Resistance Areas: 14.10, 13.35, 13.05, 12.65
Time Frame: 1 to 3 weeks

Why We Like It:
We are going with a cheapie in the financial services sector tonight, which looks terrible across all industries, from banks, to lenders, to broker dealers. A study released today said that the 85% of Americans do not trust the financial markets and have therefore reconsidered their investment activities. Retail trading volumes are way down which will hurt firms like Chuck (SCHW). Technically, the stock has run right up into prior support (now resistance) from July and has turned lower. The stock has also been making lower highs and lower lows and I see no reason for this pattern to stop if the broader market cooperates. It would be nice to see some retracement of today's losses but a breakdown is also a good set-up. I suggest readers initiate short positions with one of two triggers. If SCHW trades up to $13.70 or down to $13.55. If triggered at $13.70 we are playing for an 85 cent pullback which is our 2nd target and a gap fill. If this target is reached the estimated gain on the position is +60%. If we are wrong we won't get hurt too bad as the option is cheap.

NOTE: November strikes were just recently released in SCHW so the open interest not as great as other months. The spreads are reasonable and I am not worried about liquidity as trading will begin to pick up.

Suggested Position: Buy November $13.00 PUT, current ask $0.50, estimated ask at entry $0.45 (try to enter at no more than 45 cents)

Annotated chart:

Entry on September xx
Earnings: 10/14/2010 (unconfirmed)
Average Daily Volume: 11 million
Listed on September 22, 2010