Schaeffer's Trading Floor Blog

Will Ongoing Struggles Finally Spook MasterCard Inc (MA) Bulls?

MA is scheduled to report first-quarter earnings next Thursday morning

by 4/22/2014 11:12 AM
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Credit card issuer MasterCard Inc (NYSE:MA) has attracted more than its fair share of options bulls of late. During the past five sessions on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE), nearly 13,100 calls have been bought to open versus roughly 9,800 puts, yielding a top-heavy call/put volume ratio of 1.33.

Taking a step back to include 10 sessions' worth of data -- including information from the NASDAQ OMX PHLX (PHLX) -- yields a similarly call-skewed ratio. Specifically, MA's 10-day ISE/CBOE/PHLX call/put volume ratio registers at 1.22, with calls bought to open outstripping puts by a roughly 6-to-5 margin in recent weeks. Moreover, this metric is higher than 82% of comparable readings from the past 12 months, conveying traders have scooped up long calls (relative to puts) at a faster-than-usual clip lately.

In a similar vein, Schaeffer's put/call open interest ratio (SOIR) currently rests at 1.05, with put open interest edging out call open interest among options expiring in the next three months. Furthermore, the SOIR ranks in the bottom quartile of its annual range, suggesting short-term traders are more call-focused than usual on MasterCard.

If that's not enough, sentiment on the Street is bullish. An impressive 17 out of 28 covering analysts rate the shares a "strong buy," to go with another two "buy" recommendations; comparatively, the stock has received nine "holds" and not a single "sell" opinion. Also, MA's consensus 12-month price target of $89.62 is more than 20% higher than the current share price of $74.48.

Moving to technicals, MA has lost nearly 11% on a year-to-date basis, and has underperformed the broader S&P 500 Index (SPX) by nearly 10 percentage points in the last three months. At present, the shares are also battling resistance at their descending 10-week moving average.

Meanwhile, on the fundamental front, the credit card giant will take its turn under the earnings spotlight next Thursday morning. Last time around, an earnings miss sent the shares 5% lower in the subsequent session. Should that happen again -- and MasterCard Inc (NYSE:MA) continue to struggle on the charts -- an exodus of option bulls (along with potential analyst downgrades) could pressure the shares south.

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