Visa Call Option Activity/ EA Update

There seems to be some concentrated buying in the Visa (V, $50.55, up $0.58) February 55 calls (VBK, $1.10, up $0.25) as over 1,500 contracts have traded in the first hour. There is also over 1,600 contracts that have traded in the March 30 puts (VOF, $0.25, unchanged). These two options are the most active in the near-term option chain suggesting an exoctic option trade that is bullish.

Visa has been making the rounds this week and there are some analysts who really like Visa’s numbers for the quarter. The risk with any Visa trade right now is earnings coming out on Wednesday. However, if option traders are using this kind of strategy, the way out-of-the-money put options will provide insurance against the calls in case Visa shares take a major hit after reporting.

The glass is either going to be half full or half empty if you play something with the February options straight up. I would be willing to throw some bait out on the February 55 calls but only a “half” position. If you normally buy 10 option contracts, buy 5.

The key with Visa’s earnings is how the market reacts especially considering the recent disappointing results from other card-issuing banks. However, Visa is Visa and that alone is a powerful name. It’s hard to believe that this will only be the company’s third earnings report and there are whispers the company could beat estimates.

The stock has bounced off its January lows and has been in a strong uptrend. The chart looks good but even if all the stars are lining up for us, it is still a financial stock which throws a different element into the trade.

Earnings do not come out until after the bell on Wednesday so there may even be an opportunity to exit the trade before earnings. If we can get 15%-25% on a half position, then it will be worth it. Update: Electronic Arts (ERTS, $14.40, down $0.46) is making fresh 52-week lows again and the February 15 puts (EZQNC, $1.45, up $0.30) are up over 50%. You can close the trade here before earnings come out and take all of the risk out of the trade by closing it. Remember, a dollar never sleeps!

Rick Rouse
Rick@OptionsMentoring.com

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