6/21/2020 Plan: This week we look to sell a put in Capital One Financial (Ticker: COF)
6/21/2020 Plan (continued):
- COF sell 10 Jul 55 put for 0.77 (at the midpoint, the bid is 0.64)
- Prices are as of market close 6/19/2020, actual fill and strikes may differ depending on Monday open, post will be updated accordingly. Spreads are a bit wide, so use limit orders to make sure you are filled at a price acceptable to you.
- All trades are for educational purposes and do not constitute advice
- As always, reach out with any questions!
6/21/2020 Commentary:
With a straight short put, one should only put it on if they are willing to take ownership of the shares. Otherwise, take a look at spreads to limit the downside exposure. The Implied volatility remains quite high in COF and as shown in the chart is priced at a premium compared to how much COF has moved recently. With this trade one receives a 1.4% return on risk in about 3 weeks (77/5423) or about 25% annualized, a terrific return.
This trade is done intentionally prior to earnings, which can cause a quick dislocation in the stock price. The other near term event is the Comprehensive Capital Analysis and Review done by the Fed. This is more exciting than it sounds (really!) and are done to make sure banks can handle losses – ideally to avoid a repeat of the 2007-2008 global financial crisis. The results will be released this Thursday June 25th. This is the biggest risk to the trade.
6/22/2020 – we sold the 10 July COF 55 put for a 0.65 credit. A bit less than desired but still above 1% for less than 3 weeks.
6/27/2020 – COF dropped quite a bit this week after the results of the stress test. We remain about $6 above the strike price with 2 weeks to go until expiration. If the market continues to drop, we will be assigned and will sell calls against the position.
7/2/2020 – Update – COF ended the week at 61.15 and one can take off the put at any time for a nice profit ($46.50 of profit at the close). This option expires this week, so take it off as soon as you want. As my account will allow for taking on the shares, I’ll let it go to expiration – but do not hesitate to remove it if you’d prefer to use the cash on other trades.
7/10/2020 – Close – COF Expired worthless, taking in the full 0.65 credit. This is a 1.2% return in a little less than 3 weeks (65/5435) or an almost 21% annual return.
