When bears attack: Put options on Schwab surge

Trading of bearish Charles Schwab Corp. options surged to a 10-month high after Morgan Stanley cut its rating on the largest independent brokerage by client assets. More than 18,500 puts to sell Schwab shares changed hands, 40 times the four-week average and 14 times the number of calls to buy, as of 1:13 p.m. in New York. The shares slid 1.6 percent to $13.28, the lowest intraday level since March 2009, to extend this year's loss to 29 percent. Almost all of the put volume was concentrated in March $13 puts, which rose 17 percent to $1.40. Before today, those contracts had an open interest of 196 and eighty-two percent of the puts changed hands at the ask price, indicating that almost all of today's trades were initiated by investors buying new bearish positions. Schwab was cut to “equal weight” from “overweight” at Morgan Stanley, which said the near-zero interest rate environment will outweigh the stock's potential to rise more than its peers. Schwab's trading commissions -- which account for one fifth of revenue -- fell 8 percent to $214 million last quarter from the year-ago period, the San Francisco-based firm said in an Aug. 5 regulatory filing. The decline resulted from the brokerage's lower online fees, implemented in January, and less market trading activity, Schwab said.