SCHWAB Long +30% - A Review

I am going to break down this trade on Schwab the last 10 or so weeks which actually turned into a bit of an investment - mainly because I loaded up on shares.

To start my initial post on this was here.

Typically in situations where there is panic there is opportunity if you:

a) look hard enough

b) get creative

The SVB banking collapse essentially provided the chaos and shook up banking, regional banks included which induced a well-warranted panic.

So one thing I have learned is when those happen is to look to try to find the opportunities within that because it, usually, becomes overblown.

In comes Schwab.

Schwab is a trade for me. It meets those parameters and the structure of it made too much sense not to put it on.

Done with duration based DITM calls that I expect to appreciate over the next 3-6 months - I have no desire to hold them to expiration and I do think, regardless of what they end up having to do, that this situation on their share price was overblown.

Maybe it’s a bad punt maybe it’s not - but I like situations like this where markets overreact, especially with a quality franchise like Charles Schwab.

So effectively my thesis was this:

1. The situation was overblown

2. That the company was fundamentally sound and even if not they had options to get out of that situation

At that time, even after being down from $80 a share, it still looked bad and I want to make that clear - but I tried to look past that and the banking crisis to find an opportunities(s) and Schwab was the best of the bunch.

So sentiment was bad, research found Schwab - balance sheet then was bad but had options to fix things to improve it.

So you had market sentiment change and a catalyst within the banking sector and out of all the names - Schwab became the one that made the top of my list.

Technically, I run a top-down approach to price charts and what I wanted to see was an entry below $50 a share

Now we did test $45 and then $48s just after but in my experience with price/market timing that initial reaction takes time and consolidation of sorts is warranted.

(Look at NFLX a year ago - or any other names) again, this is just what I have noticed and there is always the initial 'FOMO’ - if I don’t buy the day it breaks down it is going to run up and never come back and let me get in.

That’s not really a trick that I fall for anymore given seeing scenarios like this over and over.

And even if it did take off on me and I never got a chance to enter, oh well.

I track enough situations/sectors in the report that there’s always the next thing coming.

And despite the fact that it was overblown we had about 3-5 weeks to trade sideways and see selling pressure ease up.

So that’s a plus.

Execution.

I talked about in the original post and in the TLV Report how I wanted to go about putting this trade on and that was with DITM options and LEAPS.

One thing changed as I dived into the idea more and as the banking crisis firmed up.

As more news of bailouts came and the Fed essentially backstopping it all that’s when I decided to size up and take the actual equity.

So that changes sentiment, again - in my opinion hence the shares.

I’ve been trying to do a better job of getting position sizing correct this year and am happy that I did so with this.

Management.

The final part. I have to admit I did get inpatient after a while mainly because the position size was pretty big so when we got to $57-$58s I sold some shares and two weeks ago, began looking to exit.

Mainly because I was up +20% on the equity - not including options.

That’s from Issue 27 so just a few weeks ago.

Today as the reported Q2 earnings the gap up provided the final exit.

I still hold some of the LEAPS but usually when you get a move like this I want to sell into it and this, originally, was supposed to be a trade.

Conclusion:

Like I said in the original post - most of this on Schwab was panic and fear and the stock really fell hard over -30% so that news priced it in.

The added backstop from the Fed helped and then obviously price and this recent earnings - and legitimately had there not been the back stop this would not have turned into as big of a P&L as it did.

Where does it go from here? Maybe $70s but lower EPS and revenue decreasing is not great among a few other things.

But price has really taken control with this gap up so we’ll see but there’s no new net long positions for me at this time.

The trade is done, it did what I wanted and we move on.

Thanks for reading.

Dan

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This article is presented for informational purposes only, is an opinion, is not intended to recommend any investment, and is not an offer to sell or the solicitation of an offer to purchase an interest in any current or future investments. Any such solicitation of an offer to purchase interest will be made by a definitive private placement memorandum or other offering documents.

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