Traders seem to be anticipating relatively good news from the Fed on Wednesday. While that is certainly possible, we remain very cautious about the short-term outlook. Rising bond yields may continue to trend regardless of the Fed’s actions this week. If that is the case, it will have a mixed impact on stocks in general, however, rising bond yields in a flat or moderately bullish market would be very good for brokerages. Companies like SCHW have been stunted since 2009 without the ability to earn a material spread on deposits. This is an effect of the artificially low yield curve created by the Fed, but that situation has been improving recently. SCHW is likely to benefit from a bullish market and/or rising yields. The fundamentals look good and they have done a great job gathering assets over the last several quarters to benefit even from mild, positive changes in the yield environment.
SCHW has an active chain sheet, but it’s not the most liquid in the market. Therefore, a limit order is absolutely critical for a good entry. We have recommended a minimum price that should be filled easily, however, sometimes prices move unexpectedly. If that happens, a limit order set to fill at the recommended minimum price should be used to enter the position if the price drops back down. Options are extremely volatile on a day to day basis, so a small fluctuation like that would be the norm and well worth the effort of setting a specific limit price to make sure you aren’t filled at a higher price that recommended.
Recommendation: Use a limit order and ‘buy to open’ the SCHW July 20 Calls (SCHW130720C00020000) for a maximum price of $0.90.
InvestorPlace advisors John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.