Filed under: Major movement, Analyst upgrades and downgrades, Good news, Industry, Options, Technical Analysis
Capital One Financial (NYSE: COF) shares are trading higher after Morgan Stanley upgraded its financial sector rating to “Neutral” from “Underweight.” The brokerage added in a note that it has seen improvement in a few underlying technical drivers. If you think that the stock won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on COF.
After hitting a one-year high of $82.25 last June, the stock hit a one-year low of $37.41 in January. COF opened this morning at $42.95. So far today the stock has hit a low of $42.89 and a high of $45.03. As of 12:20, COF is trading at $44.40, up 1.88 (4.4%). The chart for COF looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the buy and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we’ll make a 5.3% return in just six trading days as long as COF is above $40 at June expiration. Capital One would have to fall by more than 10% before we would start to lose money. Learn more about this type of trade here.
COF hasn’t been below $40 for more than a few days in the past year and has shown support around $42 recently. This trade could be risky if the stock market goes to pot in the next week, but even if that happens, this position could be protected by the support the stock might find where it bottomed in March, which is just above $40.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that might include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in COF.
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