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Shares of Visa have declined since their December high, but at least one investor called for greater moves in the stock throughout the longer-term
Jud Pyle is the Chief Investment Strategist for Options News Network. After four years with SBC Warburg, he joined PEAK6 Investments as an equity options trader and chief risk officer. February 5, 2010 4:41 EST
Shares of Visa Inc. (NYSE: V) are poised for a break-out move, according to one strangle buyer who anticipates a significant swing in the stock throughout the longer-term.
Around 2 p.m. EST, an investor bought 1,000 September 65-100 strangles for $4.08 per spread. This means the investor is looking for the stock to move $4.08 in either direction away from the strike prices. The investor will turn profits if V shares close lower than $60.92 to the downside or higher than $100.08 to the upside. Maximum risk on this trade is the premium paid, or $4.08, and occurs if Visa shares expire between the strike prices.
The September 65 puts closed today at $2.06, up two cents on the day, while the September 100 calls are priced at $2.02, down 2 cents on the day. The 65-strike puts are home to current open interest of 14 contracts, while the 100-strike calls are home to 72 contracts of open interest.
Implied volatility of the September 65 puts is roughly 34, and implied volatility of the September 100 calls is 28, compared to a 30-day historical volatility of just 21%.
V did not announce any news on Friday, and already announced better-than-expected earnings on Feb. 3 (the credit card company announced earnings of $1.02 a share, which beat estimates by 11 cents).
Strangle buyers are betting on a surge in volatility, unlike investors who sell strangles that are betting on a potential range in stock. If the stock moves significantly in either direction prior to September options expiration, the investor could choose to sell back the spread and book profits.
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