Put selling in Mastercard (NYSE: MA) post-earnings

At least one investor is calling limited downside in Mastercard Inc. (NYSE: MA) and expressing that bet by selling way-out-of-the-money puts the morning of the company’s earnings.

Looking at the March 185 puts in MA, we saw an investor sell these options more than 3,000 times for approximately $1 per contract with the stock trading down $21.48 to around $224 a share. These puts are currently trading up 65 cents with a 7-delta, and are home to current open interest of just six contracts, indicating the investor traded these options to open. The puts are priced lower than the delta would suggest, indicating the majority of the action occurred on the sell side.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize this trade.

MA shares are currently trading 15% off a recent high of $265 last month. It looks like the investor is betting the stock will hold higher than $184 (the breakeven on this trade) throughout the next six weeks or so until March options expire. This represents an 18% drop from current levels throughout the next 43 days.

MA announced earnings of $2.43 per share before the market opened this morning, which missed analysts’ estimates by three cents per share. It’s interesting that at least one investor believes the stock’s 8% decline on the day is limited going forward.

Put selling like this is a sign of moderate bullishness, and could be an example of how risk aversion is abating in the market. Also, the investor is willing to cap the gain on this trade at $1 per contract, which is why this strategy is neutral in nature rather than bullish.