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Is Visa Headed for New Highs?

V traders snatched up newly front-month calls

by 9/24/2012 9:52 AM
Stocks quoted in this article:

The shares of Visa Inc (NYSE:V - 134.15) finished Friday at their highest closing price on record, and it looks like a few options speculators are gambling on even more upside for the credit card concern. During the course of the session, V saw around 13,000 calls cross the tape, nearly doubling its average daily call volume. For comparison, fewer than 5,500 V puts changed hands.

Upon closer inspection, traders scooped up at-the-money October 135 calls, which saw open interest increase by more than 1,000 contracts over the weekend. The majority of the newly front-month calls crossed at the ask price, hinting at buy-to-open activity.

By purchasing the calls to open, the speculators are expecting V to continue its upward momentum. Specifically, the volume-weighted average price of the calls was $3.08, indicating the buyers will profit if V topples the $138.08 level (strike plus premium paid) within the next few weeks.

However, call buying is becoming more common among V's options crowd. During the past two weeks, speculators have bought to open nearly three V calls for every put on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, the stock's 10-day call/put volume ratio of 2.72 registers in the 72nd percentile of its annual range, pointing to a healthier-than-usual appetite for long calls of late.

Nevertheless, there's still plenty of room on V's bullish bandwagon. Despite depleting by 6.8% during the past month, short interest still represents nearly four sessions' worth of pent-up buying pressure, at the stock's average daily trading volume. Meanwhile, the consensus 12-month price target on the equity sits at $140.79, implying expected upside of just 4.3% from V's closing price of $135 on Friday.

Should V continue to flex some muscle on the charts, a short-squeeze situation or a round of price-target boosts could add contrarian fuel to the stock's fire. In fact, on Friday, analysts at Sterne Agee lifted their price target on the security to $160, and reiterated their "buy" recommendation.

In early trading, the shares of V have pulled back with the broader market, shedding 0.6% to linger in the $134.15 region.

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