Daily Call Sheet Focus: Charles Schwab

Nov.18.11 | About: The Charles (SCHW)

By Mark D Bern, CPA CFA

I will start out by explaining the purpose of this series of articles. I am trying to accomplish two objectives with this series:

1) Provide an easy-to-follow explanation of how to use call options to enhance returns on investments held for the long-term. I will use a specific analysis for a different company in each article for illustration purposes. Rather than reiterate the methodology in every article I will henceforth refer back to the original article in the series. If readers want a more detailed explanation of the overall strategy, they can find it in my inaugural article titled “Daily Call Sheet Focus: Bank of America," located here. In that article I discussed why selling calls makes sense for long-term investors and provide a detailed explanation of the strategy along with a basic tutorial on call options including term definitions.

2) The second objective of each article is to provide a list of call option premiums of up to 20 widely held companies that present, in my opinion, a good opportunity to lock in a good return over the coming month(s). Again, details can be found in the article link above.

Today’s focus company is Charles Schwab (NYSE:SCHW), the largest retail discount securities brokerage in the U.S. It seems that there is just no love on Main Street for anything having to do with Wall Street these days. That sentiment, along with the growing fears of a potential financial crisis, is depressing a stock with otherwise good long-term prospects.

The consensus 12-month target price for Schwab is $14.63. The current price (as of the close on Thursday, November 17, 2011) is $11.39. The recent acquisition of optionsXpress was completed in September of this year and holds the potential to boost revenue, earnings and market share in a growing sector. My 12-month target on Schwab is $14.50, very close to the consensus. However, I don’t believe the shares will rise appreciably until after the clouds of concern begin to dissipate in the second half of 2012. That will explain the disconnect that appears between my target and the recommended strike price listed below. I strongly caution readers to keep their call expirations on Schwab short for this reason.

I don’t own stock in Schwab, but if I did I would consider selling the January 2012 $12.50 strike call at a premium of $0.40. That provides a return on the current share price of 2.7% and if called away at $12.50 the total received over the two months would be $13.20 for a gain from the current price of 13.3%.

And Now The Final Piece Of The Article

Below is a list of my favorite call premiums on widely held stocks on November 17, 2011. These are not pure recommendations; rather this list is provided as a useful tool for those who sell calls to enhance their income from stocks that they own or plan to own in the near future. The list includes premiums that appear to present the best value of all widely held stocks for the day.

I have also included calls that meet my criteria on stocks that I have written about in another series that was begun on September 21, 2011, with the inaugural article entitled “My Long-Term Investing for Income Strategy," click here to read the article.

I hope readers will find this daily list useful as a starting place in finding calls to sell for added income.

Top Calls List

11/17/2011

Symbol

Ex.p Mo.

Strike $

Premium

AA

Jan-12

$11.00

$0.40

AXP

Jan-12

$52.50

$0.79

BAC

Feb-12

$7.00

$0.35

BBY

Dec-11

$30.00

$0.49

BK

Jan-12

$22.50

$0.37

BLK

Dec-11

$180.00

$1.70

C

Jan-12

$31.00

$0.93

CAT

Jan-12

$110.00

$1.13

DOW

Jan-12

$30.00

$0.59

EBAY

Jan-12

$34.00

$0.51

EMR

Jan-12

$55.00

$0.85

F

Feb-12

$12.00

$0.30

GLW

Feb-12

$17.00

$0.61

GM

Dec-11

$24.00

$0.43

HAL

Jan-12

$42.00

$1.40

HPQ

Dec-11

$30.00

$0.55

JCI

Jan-12

$34.00

$0.60

JPM

Feb-12

$35.00

$1.10

LVLT

Jan-12

$23.00

$0.90

MRO

Dec-11

$29.00

$0.44

MS

Jan-12

$17.50

$0.57

SCHW

Jan-12

$12.50

$0.40

SLB

Feb-12

$82.50

$2.32

USB

Jan-12

$28.00

$0.47

VALE

Jan-12

$28.00

$0.60

VFC

Feb-12

$150.00

$2.75

VLO

Jan-12

$25.00

$0.97

WFC

Jan-12

$28.00

$0.52

WFT

Jan-12

$17.50

$0.60

YHOO

Jan-12

$17.50

$0.68

Click to enlarge

Disclosure: I am long VFC.