Capital One (COF) 11/18/09 PriceWatch Alert Targets 38.02% Return

Posted: Wednesday, November 18, 2009 8:36 AM EDT
By: Market Intelligence Center Staff

Capital One (NYSE: COF) closed yesterday at $40.50. So far the stock has hit a 52-week low of $7.80 and 52-week high of $42.90. Capital One stock has been showing support around 39.23 and resistance in the 41.23 range. Technical indicators for the stock are Bullish and S&P gives COF a positive 4 STAR (out of 5) buy rating. COF appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Jan '10 38 covered call (COF AW) for a net debit in the $35.80 area. That is also the break even stock price for this trade. This covered call has a 59 day duration, provides 11.60% downside protection and a 6.15% assigned return rate for a 38.02% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the COF Jan '11 7.50 Call (OTF AU) and selling the Jan '10 38 call (COF AW) for a $28.40 debit. The trade has a 59 day life and would provide 11.36% downside protection and a 7.39% assigned return rate for a 46.00% annualized return rate (for comparison purposes only). Capital One has a current annual dividend yield of 0.52%. [WBA-Seven Summits Research]