Visa Inc (V) Option Bulls Charge Ahead of Earnings

Option bulls are hoping Visa Inc (V) can follow sector peer American Express Company (AXP) to an earnings win on Monday

Oct 21, 2016 at 11:49 AM
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As earnings season rolls on, Visa Inc (NYSE:V) is gearing up to release earnings on Monday evening. So far, banks and financial stocks have largely reported earnings beats this time around, including American Express Company's (NYSE:AXP) big win yesterday. In the option pits, V bulls are hoping for a similar result.

While V is down 0.7% at $81.95 so far today, the finance stock has had a solid 2016, up 5.6% so far this year. V even managed to notch a new record peak of $83.79 in late September. What's more, this upward trend isn't a new phenomenon; V has been in a long-term channel of higher highs and lows since 2011.

With its technical strength, it's understandable why option players have been optimistic ahead of V's earnings. V's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 2.69, which is in the 92nd percentile of its annual range. This indicates nearly three calls have been bought-to-open for every put option over the last two weeks, signifying a growing bullish sentiment towards the financial stock.

Drilling down, the weekly 10/28 83-strike call has seen the biggest open interest increase over this same two-week time period, with significant buy-to-open activity detected. Currently, the October 85.50 call is the top front-month open interest position, although after expiration at the close tonight, the November 85 call will be home to the peak front-month open interest.

In addition to option players, analysts also seem confident in V's performance, with 17 of 23 rating the shares a "buy" or better, and without a single "sell" on record. Short sellers, however, are another matter. V's short interest is up 3.7% over the last two reporting periods, and it would now take traders 6.7 days to cover these shorted shares, at V's average daily rate. Some of the recent call buying -- particularly at out-of-the-money strikes -- could be attributable to shorts seeking an options hedge.

Visa Inc (NYSE:V) has averaged a single-session post-earnings swing of 4% over the last eight quarters, finishing in the black five of those quarters. This time around, the options market is pricing in a 4.4% single-day move in either direction. However, the stock's relatively low Schaeffer's Volatility Scorecard (SVS) of 27 indicates V has tended to fall short of option players' volatility expectations over the past year.

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