Monday, June 15, 2009

Capital One and American Express Straddles for July

The current crisis and unemployment rate will cause bad loans. Some companies that have done well recently, too well, are prime targets for these bad loans. The chart below shows options strangles to Capital One (COF), and American Express (AXP) for July expiration.

It is very noteworthy that Capital One has just registered a charge-off rate of 9.41%, and a real one of 9.91%, a company record, see the footnote in their SEC filing:

"A change in bankruptcy processing resulted in an improvement in the U.S. Card charge-off rate that is reflected in the May results. The impact was approximately 50 basis points. While our internal guidelines require bankrupt accounts to be charged off within 30 days, our practice had been to charge off customer accounts within 2 to 3 days of receiving notification of bankruptcy. Due in part to an increase in the volume of bankruptcies, we have extended our processing window to improve the efficiency and accuracy of bankruptcy-related charge-off recognition. The new process remains within Capital One’s internal guidelines, as well as FFIEC guidelines that bankrupt accounts must be charged-off within 60 days of notification."

Who are they kidding? Was this change simply to avoid an official record or is it part of the financials pumping for stock issuing and capital raising? Straddles on this company are looking very good.

Price and RSI chart:

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