Credit card stocks have been all the rage of late. Top contenders Visa Inc (V) and MasterCard Inc (MA) have recently vaulted to new-all time highs after spending a year meandering sideways. The renewed jump came on the heels of both companies besting Wall Street’s earnings estimates in their late-October earnings reports.
Since peaking north of $86, a mild bout of profit taking has taken MA stock down a couple bucks. However, with the trend soundly upward and the recent earnings news exciting investors, I suspect this dip gets bought sooner than later.
Don’t forget the best quarter for U.S. equities is upon us and the year-end holiday spree is nearly here, so seasonality also should provide a tailwind for bullish plays on MA stock.
Click to Enlarge
Now that earnings are in the rear-view mirror and a holiday stretch known for its low volume and volatility is looming, options on MA stock are (unsurprisingly) cheap. The relative inexpensiveness of the options is revealed in the accompanying volatility chart, which shows implied volatility (gold line) languishing near a 52-week low. The uber-low volatility suggests short option plays are providing little reward, which pretty much rules out selling puts or put spreads.
Perhaps the best play to exploit a gradual rise in MA stock into year’s end is a Jan $80/$85 bull call spread.
The position consists of buying the Jan $80 call while selling the Jan $85 call simultaneously. Currently the call spread can be bought for $3.20. The max risk is limited to the initial $3.20 debit and will be lost if MA stock sits below $80 at January expiration. The max profit is limited to the distance between strikes minus the net debit, or $1.80, and will be captured if MA stock can rise above $85 by Jan expiration.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
