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Long-term bullish trade in Capital One

One investor is looking for a modest rally in Capital One Financial in the course of next year.

optionMONSTER's Heat Seeker tracking system detected the purchase of 2,500 January 2013 45 calls for $5.55 and the sale of an equal number of January 2013 47 calls for $4.55, resulting in a cost of $1.

Volume was below open interest in the 45s, so there are two possible explanations for the activity. One is that both blocks were opening trades, in which case it was a bullish call spread with the potential to earn a maximum profit of 100 percent if the bank stock closes at or above $47 on expiration.

The second possibility is that the investor owns COF shares and had previously sold the 45s against it as part of a covered call strategy and is now rolling the position higher. The net effect is similar: They're paying $1 now to make $2 and have 13 months for the bet to pay off. (See our Education section)

COF is up 1.14 percent to $42.42 in early afternoon trading and has been slowly grinding higher since the market crashed in early August. Its last three earnings reports have beaten estimates, and the company is reserving less money against bad loans.

During that time it has mostly traded between about $40 and $47, so today's trade is essentially targeting a return to those recent highs.

Overall option volume is twice the daily average so far today, with calls outnumbering puts by 22 to 1.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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