Bought +1 COF 100 SEP 09 35 PUT @1.90, Mark 35.89

By Paul | Published: August 21, 2009

My limit order was executed at the open today for Capital One Financial (COF).  I placed this yesterday at the close and totally forgot about it…

While we are testing a long term resistance (Figure 1, pink trendline at top of chart) at about $36, there is no confirmation yet.  The recent bullish momentum could very well sweep COF along to break it.

On the other hand, a look at S&P normalized by US Dollar Index shows the market is also pushing up against a significant resistance.  I will make another post about this after the close today as a market analysis.

Thirdly, the divergence in sentiment based on high yield stocks or junk bonds v. market price is as obvious as ever.  Although this has been the case for a while now, so this perspective doesn’t hold much weight anymore.  The market simply can be irrational beyond anyone’s guess.

Entry: $35.89

Stop: Above $35.00, by next Tuesday.

Target: $33, by next week.

I’ve updated my risk metric for options to incorporate the time parameter.  A more thorough analysis can be gleaned from Figure 3 with the expected value of the options at 1, 2, and 3 weeks from now.

To be more precise, the Profit/Loss on August 28 is -$41.5 if COF = $36, and +$110.6 if COF = $33.

So the Reward / Risk = $110.6 / $41.5 = 2.7 < 5.  The R/R is predictably horrible.  That’s why I’m setting a tight stop on this.  We’ll see how today’s push higher plays out and I’ll probably ditch this sooner to minimize my risk.

Capital One Financial

Capital One Financial

Capital One Financial

Capital One Financial

Risk Profile

Risk Profile

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