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Visa Option Players Predict More Upside

Is the options crowd gambling on a post-earnings pop for V?

by 1/31/2013 9:17 AM
Stocks quoted in this article:

The shares of Visa Inc (NYSE:V - 155.01) are pointed 2% higher in pre-market action, which could trigger applause from the recent crop of option bulls. During the course of Wednesday's session, the credit card concern saw roughly 15,000 calls cross the tape -- more than twice its average daily call volume. For comparison, just over 7,900 V puts were exchanged.

Digging deeper, traders established new positions at the February 160 call, which saw open interest jump by more than 800 contracts overnight -- the most of any strike. Plus, a healthy portion of the front-month calls changed hands at the ask price, hinting at newly bought bullish bets.

By purchasing the calls for a volume-weighted average price (VWAP) of $1.70, the speculators will profit if V topples the $161.70 level (strike plus VWAP) by options expiration on Friday, Feb. 15. With the company's first-quarter earnings release set for Wednesday, Feb. 6, the call buyers could be gambling on a post-earnings pop for V. However, even if Visa fails to follow in the footsteps of sector peer Mastercard Inc (NYSE:MA) -- which reported solid earnings this morning -- the most the buyers can lose is the initial premium paid for the calls.

What's more, V's short-term options are still attractively priced at the moment. The stock's Schaeffer's Volatility Index (SVI) currently rests at 24% -- above just 39% of all other readings of the past year. Or, in simpler terms, V's front-month option premiums are relatively inexpensive right now, pointing to an opportunity for buyers to place their bets.

Technically speaking, V has been on fire, skyrocketing more than 50% during the past year. In fact, the equity touched an all-time peak of $162.77 earlier this month, but has since taken a breather atop support in the $155 region.


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