Unusual Options Activity: Visa (V)

Visa (V)

Trader bets on 17 percent rally in shares in the next year.

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  • January 2021 $235 call options on Visa (V) saw a four-fold rise in volume, going from 200 contracts to over 750.

    The bet, expiring 347 days, is that shares will move higher from around $200 by about 17 percent.

    The buyer also paid about $4.75 per share, so they’ll only make a profit at expiration if shares hit new all-time highs of $240. The buy comes after shares dropped slightly after lackluster earnings numbers.

    Even with the lackluster earnings numbers, Visa is the best play in the oligopoly credit card space.

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  • With 13 percent revenue growth, 6 percent earnings growth, and a fat 52-percent profit margin, shares have been an attractive, slow-and-steady play for investors for years.

    Action to take: Following last year’s 54 percent run-up, the 17 percent return form these long-dated calls looks reasonable for shares this year.

    While the company is a bit pricey at 27 times forward earnings, the company’s continued and relatively steady growth makes it look like an attractive options play.

    The company has a large cash balance, nearly offsetting the company’s total debt, so we see little credit risk in this play compared to many of the highly-leveraged companies out there.

    Shares are also a solid buy in the low $200 range, although shareholders will be disappointed by the company’s low 0.6 percent dividend yield.

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