Stocks quoted in this article:
Like Jared Allen and mullet jokes, Visa Inc. (V) and MasterCard Incorporated (MA) frequently go hand-in-hand. Such was the case this morning, when FBR Capital Markets initiated coverage of both credit-card stocks with identical "outperform" ratings, as though to make sure one equity did not get jealous of the other. Following this news, both stocks have been targeted by similar-minded option strategists.
First up, Visa Inc. (V) caught the attention of a strangle speculator following this morning's bullish initiation. Right around noon, one trader purchased 150 May 90 puts, and simultaneously bought 150 May 95 calls. With V trading near $93, both options are out of the money. The ultimate goal of this strategy is for V to make a major move higher or lower prior to expiration, placing one of those options deep enough in the money to offset the cost of entry on the spread (which, in this case, was a hefty $4.20 per pair of contracts).
V has more recently been the target of relatively straightforward call speculation, with the equity's 10-day International Securities Exchange (ISE)/Chicago Board Options Exchange (CBOE) call/put volume ratio of 6.26 arriving higher than 100% of other such readings taken during the past year.
The shares of V have backpedaled today amid weakness in the broader equities market, but support from the equity's 10-day moving average has contained its pullback. This short-term trendline and its 20-day counterpart have propelled the shares higher since early February.
In the same high-volatility vein, MasterCard Incorporated (MA) was singled out for a long straddle. A few hours ago, one trader purchased a block of 65 January 2011 270 calls, and simultaneously scooped up a block of 65 January 2011 270 puts. Like Visa's strangle speculator, this trader is looking for a dramatic price change from MA, but isn't sure which direction the shares will take.
With months of time value priced into these January 2011 options, this straddle was opened for a rich net debit of $51.05. As a result, the trader needs MA to rise above $321.05 or fall below $218.95 prior to January 2011 expiration in order to start collecting profits.
Since those January-dated puts are already in the money by about 10 points, this straddle appears to have a moderately bearish skew. In fact, it would be quite a feat for MA to make a decisive move above $270. This round-number region coincides with the equity's current 52-week high, suggesting it could act as double-top resistance. Moreover, MA hasn't managed a monthly close above $260 since June 2008.