Charles Schwab Plunges 2.87%: What’s Behind the Sudden Selloff?

Summary
• The Charles Schwab (SCHW) trades at $92.73, down 2.87% intraday
• Intraday range: $94.72 high to $92.235 low
• Morgan Stanley (MS), sector leader, down 0.99%

Charles Schwab’s sharp intraday decline has sparked urgency among traders, with the stock trading near its 52-week low. The move coincides with broader capital markets sector jitters and regulatory uncertainty around crypto expansion. With options volatility surging and technical indicators flashing mixed signals, the question looms: is this a buying opportunity or a deeper bearish shift?

Regulatory Uncertainty and Crypto Exposure Spark Flight
The selloff aligns with UK-US regulatory discussions on digital assets, which have rattled crypto-linked stocks. Schwab’s recent branch expansion and crypto foray—highlighted in its August $44.4B net new assets report—now face scrutiny. Options data reveals heightened bearish positioning: 63 contracts for the $93 call (SCHW20251010C93) traded 10,087 times, while put options like SCHW20251010P89 show 1448 turnover. This suggests institutional hedging against regulatory headwinds. Meanwhile, Schwab’s 52-week low proximity (64.16) amplifies risk-off sentiment.

Capital Markets Sector Mixed as Morgan Stanley Drags
The Capital Markets sector remains fragmented. While Schwab’s crypto exposure draws scrutiny, Morgan Stanley (MS) faces its own challenges, down 0.99% on concerns about margin compression. Schwab’s 22.3x P/E ratio lags behind sector peers like Goldman Sachs (GS) at 18.7x, reflecting divergent earnings trajectories. However, Schwab’s 30-day RSI (60.09) suggests oversold conditions, contrasting with MS’s 58.4 RSI. This divergence hints at Schwab’s potential rebound if regulatory fears abate.

Options and ETFs for Navigating Schwab’s Volatility
• 200-day MA: $85.22 (below current price)
• 30-day RSI: 60.09 (neutral)
• Bollinger Bands: 90.44–97.45 (price near lower band)
• MACD: 0.035 (bullish) vs. -0.348 signal line

Schwab’s technicals suggest a short-term bounce from oversold levels but long-term bullish bias. Key support at $90.44 (lower Bollinger) and resistance at $93.94 (middle band). The 52-week low (64.16) remains a critical watchpoint. For leveraged exposure, consider XLF (Financial Select Sector SPDR ETF) at 26.4x P/E, though its 0.8% yield may lag Schwab’s 0.4%.

Top Options:
1. SCHW20251010C93 (Call, $93 strike, 10/10 exp):
- IV: 24.62% (moderate)
- Delta: 0.516 (balanced sensitivity)
- Theta: -0.2155 (high time decay)
- Gamma: 0.1051 (strong price sensitivity)
- Turnover: 10,087 (high liquidity)
- LVR: 60.00% (moderate leverage)
- Payoff (5% downside): $1.365 (max(0, 88.09 - 93) = 0).
- Why: High gamma and turnover make this ideal for a short-term rebound trade if Schwab breaks above $93.94.

2. SCHW20251010C94 (Call, $94 strike, 10/10 exp):
- IV: 26.41% (moderate)
- Delta: 0.419 (moderate sensitivity)
- Theta: -0.1933 (high time decay)
- Gamma: 0.0961 (strong sensitivity)
- Turnover: 3,743 (solid liquidity)
- LVR: 76.86% (high leverage)
- Payoff (5% downside): $0.685 (max(0, 88.09 - 94) = 0).
- Why: High leverage and gamma position this for a breakout trade if Schwab stabilizes near $92.235 support.

Action: Aggressive bulls may consider SCHW20251010C93 into a bounce above $93.94. Conservative traders should watch the $90.44 support level before committing.

Backtest The Charles Schwab Stock Performance
The performance of SCHW after a notable -3% intraday plunge in 2022 can be summarized as follows:1. Impact of SEC Proposals: The SEC's proposals to overhaul the equity market structure had a bearish effect on SCHW, as analyst Craig Siegenthaler predicted a 1% EPS headwind and a 2% revenue headwind for the company. This led to a 3% drop in SCHW's share price on June 13, 2022, when the SEC announced the charges against Charles Schwab's investment adviser subsidiaries.2. Settlement with SEC: The settlement with the SEC, which required Charles Schwab to pay $187 million to harmed clients, further impacted the company's reputation and share price. This news contributed to a 1% drop in SCHW's share price on July 1, 2021, when the SEC investigation was disclosed.3. Overall Performance: Despite these setbacks, SCHW's stock price has shown resilience. For example, after the initial SEC investigation was disclosed, the share price dropped by 1% to close at $72.80 on July 2, 2021. However, the stock price has since recovered and has seen significant appreciation due to various factors such as the merger with TD Ameritrade and the overall buoyancy in equity markets.In conclusion, while SCHW experienced a significant -3% intraday plunge in 2022 due to the SEC investigations and settlements, the stock has since rebounded and has outperformed the market. The impact of these events has been largely absorbed by the market, and the company's fundamentals, such as the improved profitability and the merger with TD Ameritrade, have contributed to its performance.

Act Now: Schwab at Inflection Point
Schwab’s selloff reflects regulatory jitters and sector-wide margin pressures, but technicals and options data hint at a potential rebound. The $90.44 support level is critical—break below it, and the 52-week low (64.16) becomes a hard target. Conversely, a close above $93.94 could reignite bullish momentum. With sector leader Morgan Stanley (MS) down 0.99%, broader capital markets sentiment remains fragile. Watch for $90.44 breakdown or regulatory clarity—either could define Schwab’s near-term trajectory.