I don’t actually have a Capital One (Ticker: COF) credit card in my wallet. I do have a debit card, though. I had my first online savings account with ING in the early 00s and Capital One bought them up back in 2011 for $9B.
With this week’s trade, I’m looking to put a few dollars in my wallet (ugh, sorry) by selling puts in COF. I’ll happily take the shares and wheel out of them if assigned.
Back in January, COF peaked at 107.59 and it bottomed at 38(!) in March. It has recovered nicely to about 60, but remains well below its highs.
Capital One has a Lot of exposure during the crisis as unemployment is high and COF’s revenue is heavily dependent on the consumer. Long term, the economy will recover, people will spend again, and Capital One should do just fine.
- Sell 19 Jun 45 put for 0.60
- Price is at the mid-point as of 5/22/2020
- Trades are for educational purposes only and do not constitute financial advice
What could happen with this trade?
- COF stays above $45 – we keep the full $60
- COF ends below $45 – we are assigned shares at an effective price of $44.40 (45 – 0.60 credit).
COF has to go down about 25% in a little under three weeks for this trade to lose money. Certainly possible, but if it does, we’re looking to add to names that we want to hold long term.
If the puts expire worthless, we’ll make 1.35% on our risk in under 4 weeks, or 17.55% annualized.
When we put on trades like this and are willing to take ownership of the shares, there is really no management required – which is great for those of us that trade part time. If you want to take a more active approach, you can roll the puts if challenged (down and out, for a credit). One can also convert this to a spread to narrow the risk, with the trade-off of less premium.
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