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Call Activity Swells on Visa Inc (V) Amid New Record High

Call sellers are betting on a near-term ceiling for V

by 12/19/2013 2:18 PM
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Visa Inc (NYSE:V) shares reached a record high of $217.87 this morning, after Evercore Partners lifted its price target for the stock to $265 from $233 overnight. In addition, the credit card giant announced that Ellen Richey has been named executive vice president and chief legal officer of the firm. Meanwhile, V has seen an acceleration in call volume today, as about 10,000 contracts have been exchanged so far. This is a 68% mark-up to the security's typical intraday pace, and almost double the number of puts traded.

However, not all of today's call activity is of the bullish variety. Nearly 1,300 contracts have crossed the tape at the January 2014 225 strike -- including a block of 1,000 calls that changed hands at the bid price of $1.76 each, indicating they were sold. Since the volume at this strike exceeds present open interest levels, it's likely that new short positions have been created here. Data from the International Securities Exchange (ISE) supports this theory.

By selling the calls to open, the trader is counting on V -- currently docked at $217.07 -- to remain south of the $225 mark between now and the close on Jan. 17, when these options expire. This would render the contracts worthless, and allow the speculator to retain the net credit collected for his call sales. However, if the stock surmounts the strike price over the next four weeks or so, the seller could find himself at risk of assignment, which would obligate him to deliver the shares for $225 each, no matter how high the security should climb.

It's also possible that today's speculator is actually a Visa Inc (NYSE:V) stockholder, in which case he may be writing covered calls as a way to generate some extra income on his shares. In either case, it's worth noting that the security's Relative Strength Index (RSI) of 71 hovers near overbought territory, suggesting a pullback may be in the cards for the credit card giant.


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