Analysis and earnings trade ideas for Visa

• Posted by Greg Harmon
• on July 23rd, 2015

This analysis and the trade ideas were given to subscribers just before 1pm today.

Visa, $V, is one of the most popular credit cards and a behemoth in the space along with Mastercard, $MA. Both spend a ton of money getting their brand recognized, they are all over the media. Tonight they will be in the media for another reason, they report earnings after the market close. The crowd sourced estimate in Estimize shows an expected 61 cents per share and revenues of $3.416 billion, both above what Wall Street analysts predict.

I am more interested in what the price and market action are telling about the stock in the short term though. The price has been moving higher ion a rising channel since late January. On Monday the price hit the top of the channel and started to pullback. The last two times this happened the stock eventually moved back lower to the bottom of the channel and found support.

The momentum indicators are showing some signs of exhaustion as this is happening. The RSI remains bullish, but is pulling back form a touch at overbought levels while the MACD is leveling. A look at the Bollinger Bands® shows them wide, and price moving away from them. This situation occurred in the prior pullbacks as well.

There is support from prior price history at 70.20 and 69.50 followed by 67.60 and 66.65. The only resistance above is at 73. Were the price to move higher though, it would be out of a bull flag and carry a target move to 77.80. The average move following the last 6 earnings reports has been 3.97% or about $2.85 at current price levels. The stock also has moderate short interest at 3.1%.

Looking at the July 24 Expiry options chain, with 1 day until Expiry, shows the at-the-money Straddle price a $2.45 move following the report, a bit smaller than the historical. The implied volatility is high at 66% compared to the August options at 21%, so premiums for tomorrow are inflated and will fall after the report. Open interest is larger on the Call side and focused around the 71.5 Call, but sizable up to 73. The largest open interest on the Put side is at the 72.5 Strike above.

Visa, $V

Trade Idea 1: Buy the July 24 Expiry 71.5/70/68.5 Put Butterfly for 36 cents.

Trade Idea 2: Buy the July 24 Expiry 71.5/72.5-73 1×2 Call Spread for free.

Trade Idea 3: Buy the July 24 Expiry/August 73 Call Calendar for $0.52.

Trade Idea 4: Buy the July 24 Expiry/August 73 Call Calendar and sell the July 24 Expiry 69.5 Put for free.

Trade Idea 5: Sell the July 24 Expiry 71.5 Straddle for a $2.40 credit.

#1 looks for a continuation of the pullback bu a hold at 70 tomorrow. #2 looks for a reversal higher to be capped by the large open interest ad the rising channel top. #3 works for the longer term upside looking for 73 to stall the price tomorrow. #4, a Call Calendar Risk Reversal, adds leverage to #3 with a possible entry at 69.50. #5 is profitable on a close between 69.10 and 73.90 Friday. I like #1, #5 or #4.

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