I have two options trading plays for you today. A bullish trade in Capital One (COF) and and bearish in Cree (CREE). We’ll be using a basic vertical spread in each.
Capital One Financial (COF) is credit card issuer that operates as a bank holding company. Which means it actually issues the loans and profits from collecting fees and interest payments. This is in contrast to Visa and Mastercard which simply collect ‘swipe’ fees.
Based on JPM Morgan and Wells Fargo’s earnings reports, which showed credit card and consumer lending as their strongest segments, it follows that COF will have similar strength. Add in credit card balances at their highest levels in over a decade and rising interest rates means COF should keep the EPS growth trend in place and easily beat the top and bottom lines which are looking for 8% and 15% growth respectively.
Options Trading Action:
Let’s use a vertical spread:
-Buy to open 4 contracts COF Jan. (1/26) 103 Call
-Sell to open 4 contracts COF Jan. (1/26) 105 Call
For a Net Debit of $0.95 (do not go above $1.10)
Cree (CREE) manufactures LED lighting products that are sold to whose end market are mostly institutions such as school and hospitals. It also makes some low end chips for lighting in cars and some mobile devices.
For the most part, it makes commoditized products and doesn’t have pricing power. Its end markets are not growth areas. It is expected to break even on zero revenue growth. The chart looks ready for a breakdown.
Options Trading Action:
-Buy to open 3 contracts CREE Jan (1/26) 36 Puts
-Sell to open 3 contracts CREE Jan (1/26) 32.5 Puts
For a Net Debit of $1.35 (go as high $1.45)
Related: Learn How to Protect Your Investment Portfolio Here