Visa Stock Pointed Lower After Earthport Deal

Visa options are pricey at the moment, too

by Patrick Martin

Published on Dec 27, 2018 at 9:13 AM

The shares of Visa Inc (NYSE:V) are down 1.5% in electronic trading, after the company inked a $250.6 million deal to buy Earthport, a British payments firm that specializes in international transactions. This comes as Visa stock has languished during the broad market sell-off this quarter. V scored a record high of $151.56 back on Oct. 1, but has gone on to lose 13.2% this quarter, which would mark its worst quarter since 2010.

Despite the stock's recent struggles, analysts remain steadfast in their commitment to the Dow name. There are 25 brokerages in coverage of Visa, 24 of which say to buy the security, compared to zero who say to sell it. Further, V's consensus 12-month price target of $163.56 is a 26% premium to yesterday's closing perch of $130.23. 

In recent weeks there has been ramped up pessimism in the options pits, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Visa sports a 10-day put/call volume ratio of 1.14, which ranks in the 92nd percentile of its annual range. This indicates the rate of put buying relative to call buying has been quicker than usual.

For those going that route, premium on short-term options are pricing in extremely elevated volatility expectations, per V's 30-day at-the-money (ATM) implied volatility (IV), which closed last night at 36.9% -- in the 99th annual percentile. Moreover, calls have rarely priced in higher volatility expectations when compared to puts, per the stock's 30-day IV skew of 7%, which ranks in the 6th percentile of its annual range.


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