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Strategy plays calendar in Capital One

David Russell (david.russell@optionmonster.com)

Capital One Financial has climbed back to a key level, and investors apparently think that there's no going back.

optionMONSTER's tracking systems detected two large market-neutral trades on the company, which provides credit cards and runs banks. The first utilized the June 55 puts and the May 55s.

The June contracts were bought for $1.58 and the Mays were sold for $0.69. Some 4,500 contracts changed hands in both.

The shorter-dated puts will lose their value more quickly, causing the value of the position to increase. It's known as a calendar spread because it exploits the different rates of time decay in the two options.

About 15 minutes later, a block of 5,000 September 47 puts was bought for $1.24 and an equal number of the September 50s was sold for $1.83. Volume was below open interest in the 47s, so there are two possible explanations for the activity.

The investor may have previously been short the 47s and bought them back to roll to the higher strike. He or she also may have opened a new put credit spread . Regardless, both yielded a credit of $0.59 and reflect a belief that COF will stay above $50 through Sept. 21. (See our Education section)

COF rose 0.97 percent to $56.02 yesterday. The shares have risen more than 30 percent so far this year.

The stock is now consolidating around the same price range where it peaked in 2011 and the first half of 2008. That could be leading some chart watchers to believe that it will pause before continuing higher. Rival American Express displayed a similar chart pattern about two months ago.

Overall option volume in the COF was 10 times greater than average in yesterday's session.

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