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Option Activity Alert: Bulls Place Their Bets on Visa Inc.

Call volume is rising as the stock flirts with new all-time highs

by 3/26/2010 1:30:38 PM
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Calls were the options of choice on Visa Inc. (V) yesterday, with approximately 22,000 of these bullishly oriented contracts changing hands during the course of Thursday's session. The day's rush of call volume translated to about 1.43 times V's expected daily call activity of 16,000 contracts.

V SOIRTraders on the International Securities Exchange (ISE) did their part to contribute to the day's upbeat bias. On Thursday, speculators on the ISE bought to open 3,812 calls on V, compared to just 409 puts, netting the stock a single-day call/put volume ratio of 9.32.

Taking a slightly longer-term look at buy-to-open option volume, yesterday's bullish onslaught was no one-day wonder. During the past 10 days, option players on the ISE have bought to open 2.95 calls for every put on V, with optimistic bets nearly tripling their pessimistic counterparts. This ratio arrives in the 79th annual percentile, as speculators on this exchange have purchased calls over puts at a faster pace just 21% of the time during the past year.

V open interestIn keeping with this rising tide of bullish sentiment, V's Schaeffer's put/call open interest ratio (SOIR) is lingering in complacent territory. The SOIR currently stands at 0.65, with calls comfortably outnumbering puts among options set to expire within three months. This ratio ranks in the 38th annual percentile, on the modestly upbeat side of neutral.

In the front-month series, speculators are dividing their attention between two heavily populated call strikes. V's out-of-the-money April 95 call is the site of peak call open interest for the series, with 12,108 contracts outstanding. However, the at-the-money April 90 call is not far behind, with 10,102 contracts in residence.

In fact, on Thursday, it was V's April 90 call that drew the bulk of the attention, with 8,069 contracts crossing the tape during the course of the session. The majority of these calls traded at the ask price, confirming they were most likely purchased, and implied volatility on this front-month option climbed 1.5% by the close. Open interest at this strike actually fell overnight by 1,286 contracts, though, suggesting that any new bullish additions were outweighed by liquidations.

And with V establishing a foothold above the $90 level, call writers could very well have been buying to close their short positions. Likewise, short sellers have been backing away from their bearish bets on the stock, with short interest dropping by more than 14% during the most recent reporting period. Now, shorted shares represent a reasonable 4.1% of the security's float.

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