Stock Analysis: Is Trading Capital One a Good Way to Keep Your Wallet Full of Cash?

Capital One Financial Corporation (NYSE: COF) is a U.S. based bank holding company based in Mclean and specializes in credit cards, home loans, auto loans, banking and savings products. The company was established in 1988 and grew into a Fortune 500 company within a few years by expanding its credit card market. The company got into the banking business with the fire-sale purchase of Chevy Chase Bank in February 2009 to the tune of approximately $520 million.

On October 20th, the company reported its third quarter earnings. Quarterly profit increased by 1 percent from the same period a year earlier. The company posted profit of $813 million, compared with $803 million in the previous year’s corresponding quarter.

Prior to earnings, the stock had been trading below the 50Daily Moving Average (DMA), but with the positive earnings report, the stock broke out above the 50DMA, but could not take out the 200DMA; it has been consolidating between the 50DMA and 200DMA, however.

From early August, the stock has been consolidating between the 36 and 46 levels, it seems. If you like the stock, and would like to take advantage of the sideways move, a good options strategy to implement is to sell the December 35/48 Iron Condor for $0.27 credit or better (depending on how wide you want the strikes). As long as the stock doesn’t break out above 48 (200DMA) or break down below the double bottoms formed on 08/08 and 10/04, the strategy should play out nicely. With a strategy such as the Iron Condor, it would be nice to let the options expire worthless, but a 50% - 70% profit should be taken off the table before the options expire in December.

Disclosure: This is an analysis and not a trade recommendation. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours of this writing.

  

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