Capital One trade looking for rebound

optionMONSTER

Capital One is trading lower again today, but a big three-way spread is looking for a bounce.

optionMONSTER systems show that a trader sold 5,000 January 50 puts for the bid price of $4.20 against open interest of more than 10,000 contracts. Seconds later he or she bought 5,000 January 55 calls for $4.50 and then sold 5,000 January 70 calls for the bid price of $0.70. The volume at the two calls strikes was more than 5 times the previous open interest, indicating that this is a new call spread.

This bullish action could be the work of a trader who is changing views, closing long puts and putting most of the money into a call vertical . But this is more likely an opening three-way play, with the trader using the put sale to more than offset the cost of the call spread .

The latter scenario would take on the risk of buying shares if they are below $50 but would have a credit if shares remain where they are and would generate a healthy profit if they bounce above $70. (See our Education section)

COF is down 0.85 percent to $53.57, its lowest level since July. The bank-holding company was above $56 on Friday and above $62 a month ago, before its last earnings report.

Almost 20,000 COF options have changed hands so far today, compared to a daily average of 6,400 over the last month.



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