Capital One earnings impress on growing revenues

Capital One Financial Corp. (NYSE: COF) opened at $77.49. So far today the stock has hit a low of $76.51 and a high of $78.80. As of 11:05, COF is trading at $77.26, up $1.75 (2.3%).

After hitting a one year high of $87.19 a full year ago, the stock fell to a year low of $69.30 in August. The stock has repeatedly hit resistance in the low-80's throughout the past year, and has fallen sharply in the past month after hitting a top at 82 in June. The company released its Q2 earnings report yesterday after the closing bell, reporting earnings of $1.89 per share, topping analysts' predictions of just $1.62 per share. COF reaffirmed its full-year forecast, citing revenue growth for its stellar performance thus far. Technical indicators for COF are bullish but deteriorating, 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 September bull-put credit spread below the $70 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk and leverage returns. For this particular trade, we will make a 8.7% return in just two months as long as COF is above $70 at September expiration. COF would have to fall by more than 9% before we would start to lose money.

COF hasn't been below $70 by more than a few cents in the past year and has shown support around $75 recently. This trade could be risky if the company's earnings aren't as rosy upon closer inspection, but even if that happens, it looks like COF could have trouble going lower than $70, where the stock bounced twice in the past year.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: At publication time, Brent neither owns nor controls positions in COF.