Capital One Financial (NYSE: COF - option chain) shares are rising today after the company reported a third-quarter profit of $425.6 million, or 94 cents per share, on revenue of $4.63 billion. Analysts had forecast a profit of 14 cents per share on revenue of $4.11 billion. 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.COF opened this morning at $41.89. So far today the stock has hit a high of $42.90, but as of 12:20, COF is trading near its day low at $41.15 up $2.82 (7.4%). The chart for COF looks bullish and S&P gives the stock a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $32 range. A bull-put credit spread is an options position that combines the purchase 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 will make a 7.1% return in two months as long as COF is above $32 at December expiration. Capital One would have to fall by more than 22% before we would start to lose money. Learn more about this type of trade here.
COF has not been below $32 since August and has shown support around $33 recently.
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 may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in COF.
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