NEW DIRECTIONAL CALL PLAYS
Capital One Financial - COF - close: 81.42 change: +1.87
Stop Loss: 78.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.5 million
Entry on November -- at $---.--
Listed on November 07, 2015
Time Frame: 6 to 8 weeks
New Positions: Yes, see below
Most people probably think of Capital One as a credit card company. They are also one of the top ten largest banks, based on deposits. The company is #145 in the Fortune 500. According to COF they have nearly 45 million customer accounts.
COF is part of the financial sector. According to the company,
"Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A., and Capital One Bank (USA), N.A., had $212.9 billion in deposits and $313.7 billion in total assets as of September 30, 2015. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has branches located primarily in New York, New Jersey, Texas, Louisiana, Maryland, Virginia and the District of Columbia."
COF's earnings results have been on something of a roller coaster. That big plunge in the stock price in July was a reaction to disappointing Q2 earnings (announced July 23rd). COF's earnings results were 19 cents worse than expected and revenues came in below expectations.
Shares reversed higher in late October when COF delivered better than expected Q3 results. Analysts were expecting a profit of $1.97 a share on revenues of $5.89 billion. COF beat estimates on both fronts with earnings of $2.10 a share. Revenues were up +4.6% to $5.9 billion.
Shares of COF surged on this news and rallied to the $81.50 area, which has been resistance the last two weeks.
COF and most of the financials displayed relative strength on Friday (Nov. 6th) as the market reacted to the October jobs report. The better than expected jobs number almost guarantees the Federal Reserve will raise interest rates in December. This is very significant for the financials.
The Fed hasn't raised interest rates in almost a decade. When they do the banks should see a bump in their profit margin. Bears could argue that the Fed will raise rates so slowly it will take a long time for the banks to see any real impact. That might be true but the markets are always looking ahead and the financial sector should rally into the Fed's interest rate hike cycle.
Another bonus for the banks and credit card companies like COF was the surge in consumer credit. According to the Federal Reserve the U.S. saw consumer credit rise at a seasonally adjusted rate of +7.5% in the third quarter. Yet the numbers that just came out on Friday show that consumer credit surged to a higher than expected +10% annual rate in September.
Technically shares of COF appear to be coiling for a bullish breakout past resistance near $81.50. The point & figure chart is already bullish and forecasting a long-term target of $99.00. Tonight we are suggesting a trigger to buy calls at $82.15.
Trigger @ $82.15
- Suggested Positions -
Buy the 2016 JAN $85 CALL (COF160115C85) current ask $1.14
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike