Sell a Put on Capital One for Incredible Income

With some countries and states moving to reopen businesses, Capital One Financial Corporation (NYSE:COF) is an excellent target for a bullish put write.

COF’s earnings failed to meet analysts already low expectations. The company reported a non-GAAP loss per share of $3.02.

Though its net revenues were up, it still fell short of expectations, albeit barely.

But as consumers start to earn (and spend) again, credit companies like COF will see more business, and that gives investors hope.

Don’t Look Too Far Into COF’s Future

Credit debt is riskier than mortgages or auto loans, and consumers still default on their credit debt in the best of times. If consumers aren’t getting income, they aren’t paying their bills. COF’s rise is directly connected to the new plans being released to open up the U.S. states.

It’s not that investors believe COF’s recovery is right around the corner. They just have a clearer idea about when it will recover.

I still believe the economy will need a lot of time to return to normal. Gilead Sciences (NASDAQ:GILD) drug Remdesivir has been proven to be an effective treatment for some cases of COVID-19, but the U.S.’s top infectious disease expert Dr. Anthony Fauci still believes a second wave of COVID-19 is inevitable.

Caution is warranted, but that doesn’t mean I want to ignore what investors are doing.

Instead of taking a long position on COF, traders can take advantage of the short-term bullishness with put writes that expire within the next month.

COF is Still a Volatile Stock

If you look at the chart below, you can see that when COF jumped higher yesterday, its “candlestick” was short, but its “wicks” were long. The market couldn’t make up its mind during intraday trading, and that ambivalence means there’s more implied volatility boosting the value of COF’s options. It’s a good time to sell.

Capital One Financial Corporation COF Daily Chart

Daily Chart of Capital One Financial Corporation (COF) — Chart Source: TradingView

Implied volatility is already high because the day-to-day effects of the outbreak on the market are so unpredictable.

All this extra uncertainty means options sellers can demand more premium for farther out-of-the-money options, like the one I’m recommending today.

COF started rising after bouncing off support at around $51. Now that it has crossed resistance at $61, it could find new, higher support at old resistance, but a drop back down to the mid-to-low $50 range isn’t out of the question.

Setting the put-write strike at $51 means we can collect a decent premium without risking too much. As long as the trade doesn’t obligate us for too long, we should be able to capitalize on this bullish push higher.

Sell to open the COF May 29th $51 put at about $0.50.

Note: Be sure you are opening the weekly COF options that expire on Friday, May 29, 2020.

This is a high-risk trade, so take a small position.

About Naked Put Writes

A naked put write is a bullish position in which you expect the price of the underlying stock to increase.

InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.


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