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Credit Card Stocks on Fire in 2012!! Capitol One Financial(COF) Options?! By: Tim Bolger

Capitol One Financial (COF) stock has been on fire in 2012 and is one of my top stock picks in the credit card/financial services space for this year. Read more on the bio of COF courtesy of Yahoo Finance: Capital One Financial Corporation operates as the bank holding company for the Capital One Bank (USA), National Association (COBNA), and Capital One, National Association (CONA), which provide various financial products and services in the United States, the United Kingdom, and Canada. It offers consumer and small business credit card lending, national closed end installment lending, and the international credit card lending services. The company also provides various non-interest bearing and interest-bearing deposits, including demand deposits, money market deposits, negotiable order of withdrawal accounts, savings accounts, certificates of deposit, and other consumer time deposits. Its loan portfolio comprises credit card loans; consumer loans, such as auto, home, and retail banking loans; and commercial loans, including commercial and multifamily real estate, middle market, specialty lending, and small-ticket commercial real estate loans. In addition, the company provides mortgage banking, treasury management, and depository services. It primarily serves consumers, small businesses, and commercial clients through branches, the Internet, and other distribution channels. The company was founded in 1993 and is headquartered in McLean, Virginia.

Why do I love Capital One Financial (COF)?? This stock has been on a tear over the last couple of years and still looks very attractive from a fundamental valuation perspective. Currently, COF trades at $56.01(2;03p.m. EST), with a trailing Price to Earnings ratio of 8.23 and has a Price to Book value of .87. The book value of COF is $65.17 a share. In comparison to Visa (V), currently trading at $118.06 (2:04 p.m. EST), which has a trailing Price to Earnings ratio of 20.90 and has a Price to Book value of 2.94. The book value of V is $40.61 a share and is trading at a significant premium based on the Price to Book metric.  However, V is still an amazing growth story and it’s extremely important to note that V has zero exposure to losses from consumer defaults on credit card debt. This is in contrast to COF, which has great exposure to consumer defaults, because it lends alot of its own capital. Fortunately, for COF, consumer defaults have been declining as the global economy continues to improve and that has helped propel the stock even higher.

I love Visa (V) stock as well and would be a buyer of this stock under $110 per share. I believe V may run to $150 a share in 2012 and is truly another amazing success story in the San Francisco Bay Area. From a valuation perspective, I am a bigger proponent of owning shares of COF right now. COF could run to $80 in the next twelve months and next stop may be $100 per share…Legendary Hedge Fund Manager and Billonaire investor: John Paulson of Paulson & Company Inc., is one of the largest shareholders of COF, with his managed funds owning 9,420,000 shares of COF.

Capitol One Financial (COF) reports earnings on April 19, 2012. Analysts are anticipating a great quarterly report from COF. Will the company blow past Analyst earnings estimates?? And, what is the Options play on COF ahead of earnings? As you can see from the COF data below, courtesy of Yahoo Finance, COF has beat analyst expectations in three of their last four quarterly earnings reports. Clearly, the weakest financial report was their most recent one in December of 2011, in which they missed Analyst earnings expectations by 43.60%. Ouch! Yes, that was a terrible earnings miss, but I think this upcoming quarterly earnings report is going to be stellar and only time will tell the real story…Visa reported blow out numbers and I think COF earnings will thrill investors as well!!

Earnings History Mar 11 Jun 11 Sep 11 Dec 11
EPS Est 1.55 1.71 1.68 1.56
EPS Actual 2.21 1.97 1.77 0.88
Difference 0.66 0.26 0.09 -0.68
Surprise % 42.60% 15.20% 5.40% -43.60%

 

Trade#1: I would consider buying the Capitol One Financial(COF) $57.50 strike Call Options for $1.00 with an April 20, 2012 expiration. Attached are the COF Options chains with an April 20, 2012 expiration date courtesy of Yahoo Finance:http://finance.yahoo.com/q/op?s=COF+Options. If I buy 10 Call Option contracts, it will cost me $1,000 plus trading fees to get long exposure to 1,000 shares of COF at $57.50. I think that COF stock could trade to $65 per share if the company beats Analyst earnings expectations next month and gives an upbeat earnings guidance for the full year of 2012. Additionally, any positive comments by management on the conference call about a continued decline in consumer credit card defaults, would be another catalyst to propel COF stock much higher. If COF trades to $65 a share by the expiration of these Call Options, this trade will be worth at least $7,500 ($750 per contract x 10 contracts= $7,500 minus trading fees). Good luck COF bulls and remember that Options trading is very risky and to always consult your investment advisor before buying/selling any equity securities and/or Options contracts.

 

Trade#2: For the longer term bull in COF, I would consider buying the COF $57.50 strike Call Options for $3.50 per contract with a Sept 21, 2012 expiration date. Attached are the COF Options chains with a Sept 21, 2012 expiration date courtesy of Yahoo Finance: http://finance.yahoo.com/q/op?s=COF&m=2012-09. I can buy 10 Call Option contracts for $3,500, in which I will be paying a premimum for more time value to allow COF shares to potentially climb much higher over the next several months. If the shares of COF trade to $70 a share over the next several months, this trade will be worth at least $12,500.  Good luck to all of the COF Bulls and stay tuned to http://www.Optionshoney.com for more monster Options trades!

Check out the Technical Chart on Capitol One Financial below (COF) courtesy of FinViz:

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Coal Stocks Continue Free Fall!! Alpha Natural Resources(ANR) Options Honey?!! By: Tim Bolger

Alpha Natural Resources (ANR) acquired Massey Energy a few years back and has continued to slide alongside the entire Coal sector over the past 12 months. The stock is down over 70% in the past 12 months and is lighting up on my radar as a potential big long term investment opportunity. It has been a very warm winter in the NorthEast and that is not a good environment for Coal stocks…But, are coal stocks hitting a near term bottom?! Legendary Omaha, Nebraska Investor Warren Buffett has made many of his best investments when a sector is out of favor and trading at cheap valuations, but have great long term fundamentals.  Presently, I am seeing lots of value in Coal stocks and think the big slide over the past 12 months may be nearing an end.

Attached is a profile on Alpha Natural Resources(ANR) courtesy of Yahoo Finance: Alpha Natural Resources, Inc., together with its subsidiaries, engages in producing, processing, and selling steam and metallurgical coal in the United States. The company has mining operations in Virginia, West Virginia, Pennsylvania, Kentucky, and Wyoming. As of December 31, 2011, it owned or leased approximately 4.7 billion tons of proven and probable coal reserves; and operated 145 mines in northern and central Appalachia and the Powder River basin. The company is also involved in repairing and reselling equipment and parts used in surface mining; manufacturing particulate scrubbers and filters for underground diesel engine applications; rebuilding underground mining equipment; and providing coal and environmental analysis, and degassing services. In addition, it engages in the sale of non-strategic assets, such as timber, gas, and oil rights, as well as the lease and sale of non-strategic surface properties and reserves; coal brokerage; and road construction business. The company serves electric utilities, steel and coke producers, industrial customers, and energy traders and brokers. Alpha Natural Resources, Inc. was founded in 2002 and is based in Abingdon, Virginia.

What is the Options play on Alpha Natural Resources(ANR)?! ANR stock is trading at $16.64(10:29 Est Standard Time) and is down close to 70% in the last 12 months. Is now the perfect time to load up on the stock and options??

Trade#1: I would consider buying the ANR September 21, 2012 $19 strike Call Options for $1.60 a contract. Attached are the Sept. 21, 2012 Options Chains courtesy of Yahoo Finance:http://finance.yahoo.com/q/op?s=ANR&m=2012-09.  I can buy 10 contracts for $1,600 plus trading fees. That will get me long exposure to 1,000 shares of ANR at a strike price of $19. If Coal stocks recover over the next 6 1/2 months, ANR may be poised to lead this sector higher and outperform a majority of coal stocks. I am looking for ANR to trade $28 or higher by the September 21, 2012 Options expiration date. Hopefully, it will be a hot summer and that will be good for coal stocks, if Air conditioning use sky rockets. At $28 a share, my contracts will be worth $9.00($9.00x 100 shares per contract=$900 each) or greater. $900 x10 contacts=$9,000. Let’s hope this Coal slide comes to an end shortly and reverses course. Good luck to all the Coal and ANR Bulls!!! For more conservative longer term investors, I like buying shares of ANR stock at $15.00 or less.

Trade#2: I am an ANR Bull and would consider selling the ANR April 20, 2012 $15 strike Put Options for .90 cents a contract. Attached is the April 20, 2012 Options Chains on ANR courtesy of Yahoo Finance:http://finance.yahoo.com/q/op?s=ANR&m=2012-04. If I Sell 10 Put Option contracts, I will credit $900 to my brokerage account. 10 contracts x $90 per contract=$900. Remember, that we need $15,000 in cash reserves in our brokerage account in order to place this trade. The $15,000 is for the worst case scenario in which we get exercised on the 10 Put Option Contracts we sold (10 contracts x 100 shares=1,000 shares) of ANR at the $15 strike price at expiration. We will only get exercised on the shares of ANR if the stock trades below $15 on the expiration date. Either way, I am comfortable getting long shares of ANR stock at $15 and selling the Put Option contracts will help finance $900 towards my potential purchase of the $15,000 in stock. Go ANR Bulls and remember that Options are risky financial instruments. Please consult your investment advisor before buying or selling any Options/Equity Securities.

English: Logo for Alpha Natural Resources

Image via Wikipedia

See Below a 1 year chart on Alpha Natural Resources(ANR) courtesy of BigCharts.com:

Potash and Agricultural Chemical Stocks Moving Higher!! By: Timmy B.

After a sell off on Thursday, several of the Agricultural Stocks that I follow are moving higher today and staging a late day rally. To name a few: Agrium, CF Industries, and Potash are all up around 3+% on a down day across the major U.S. stock indexes.

Here is a brief bio on our focus today:

Potash Corp. of Saskatchewan, Inc. produces and sells fertilizers and related industrial and feed products primarily in the United States and Canada. The company mines and produces potash, which is used as fertilizer. It also offers solid and liquid phosphate fertilizers; animal feed supplements; and industrial acids that are used in food products and industrial processes. In addition, the company produces nitrogen fertilizers, as well as nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate, and nitric acid. Further, it holds the right to mine 785,759 acres of land in Saskatchewan; and 58,263 acres of land in New Brunswick in Canada. The company sells its fertilizers primarily to retailers, dealers, co-operatives, distributors, and other fertilizer producers; industrial products primarily to chemical product manufacturers; and purified phosphoric acid directly to consumers of the product Potash Corp. of Saskatchewan, Inc. was founded in 1953 and is based in Saskatoon, Canada. (source YahooFinance http://finance.yahoo.com/q/pr?s=POT+Profile )

Options Trade#1: Potash is rallying close to 45 a share this afternoon.  I like the Pot 43.33 Jan 21 Calls at around 1.50 a contract.  10 contracts can be purchased for $1,500 plus trading fees and gets us long exposure on 1000 shares at a strike of 43.33. Keep in mind this is a quick trade and contracts expire next Friday.  If the stock breaks through 45, it may run to 47-48 next week.  Clearly if the stock goes to 47 by Friday, this trade will make us a few thousand dollars profit less trading fees. A more conservative trade would be buying the Feb or Mar Pot calls on a slight pullback in the stock after todays rally.

Options Trade#2: To help finance Options Trade#1, in this trade I like selling the Pot 45 Jan 21 Put for around $1.25. If we sell 4 contracts, we will collect a $500 premium that will be credited to our account.  It’s very important to remember, that to execute this trade we will need $18,000 in cash as collateral in our brokerage account in case we get exercised the shares at expiration. If the stock expires next friday above $45 a share, we will not get exercised and keep the premium gained by selling the Puts.

Keep an eye on these agricultural chemical stocks and I think they will be trending higher over the next few months. Ag stocks are due for a nice rally in 2012 and we could see an 8-10% move to the upside over the next few months. After all, everyone needs to eat to be healthy.  Global food consumption will only increase with the continued growth of the world’s population and increased demand for more food…this means more chemicals sold for farming these crops! Till next time.

Chart

Chart Source: Fidelity Investments

—Timmy B.

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