from the desk of Dr. Terry F Allen

Skip navigation

Member Login  |  Contact Us  |  Sign Up

support@terrystips.com

Schwab Tested

October 24, 2022

Schwab (SCHW) reported earnings on Monday before the open that set records for both earnings per share and revenue. Both numbers exceeded the consensus analyst estimates. SCHW attributed the great quarter to its “diversified financial model and a significant benefit from higher rates.”

Analysts didn’t appear moved by the record numbers, though. There were no upgrades (nor downgrades), and just one price target decrease. Perhaps that’s because analysts have been overly bullish on a stock that is down 16% this year. Plus, analysts have an average price target that is 19% above Friday’s close.

Despite the earnings success, the stock didn’t do much in a week where the S&P 500 climbed nearly 5%. The stock couldn’t even manage a weekly gain of 2%, keeping it mired in a trading range that has persisted since late July. On the chart, the shares are looking up at the 20-day, 50-day and 200-day moving averages, all of which are pointing lower.

This trade is based on SCHW continuing to struggle in gaining any momentum now that earnings is past. Heavy overhead resistance should keep the stock contained. That’s why we’re going with a call credit spread with the short call strike sitting just above the 200-day moving average (blue line). Note that the 20-day and 50-day trendlines sit between the stock price and short strike, too.If you agree that SCHW will continue to trade sideways, consider the following trade that relies on the stock staying below $75 (red line) through expiration in five weeks:

Buy to Open the SCHW 25 Nov 77 call (SCHW221125C77)
Sell to Open the SCHW 25 Nov 75 call (SCHW221125C75) for a credit of $0.50 (selling a vertical)

This credit is $0.03 less than the mid-point price of the spread at Friday’s $70.32 close. Unless SCHW sags quickly, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $48.70. This trade reduces your buying power by $200, making your net investment $151.30 per spread ($200 – $48.70). If SCHW closes below $75 on Nov. 25, both options will expire worthless and your return on the spread would be 32% ($48.70/$151.30). 

Making 36%

Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

Order Now

Success Stories

I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

~ John Collins

Member Login  |   Programs and Pricing  |  Testimonials  |  About Us  |  Terms and Conditions  |  Accessibility Statement  |  Privacy Policy  |  Site Map

Options are not suitable for all investors as the special risks inherent to options trading my expose investors to potentially rapid and substantial losses. Please read Characteristics and Risks of Standardized Options before investing in options

© Copyright 2001-2022 Terry's Tips, Inc. dba Terry's Tips
235 Primrose Lane, Ferrisburgh, VT 05456