Earnings Trade of the Day (V) 2.8.2012

Reason I like this Trade: I looked at the amount of movement that Visa has had over the last 4 quarters and it has been very tight.  Here is a performance of how much the stock has moved the next day after earnings.  
10/27/11   $92.02   $94.40  $+2.38 (2.6%)
07/28/11   $87.75   $86.92  $-0.83 (-0.9%)
05/06/11   $78.70   $79.41  $+0.71 (0.9%)
02/03/11   $72.09   $71.63  $-0.46 (-0.6%)
Average Magnitude of Post Earnings Return 1.3%

UPDATED 2.9.2012 With the stock rallying more than I thought it would, this spread has expanded and is currently worth $2.70.  I will leave this trade on until expiration.

UPDATE 2.10.2012 With the stock market down and Visa up, this trade is not working out as planned.  I have two choices, I could either sell next week’s Feb 110 Puts to try to recover my losses or I could to take the trade off and move on.  I will decide by the end of day, hopefully I can get a sell-off in the stock.

UPDATE: 2.14.2012 This spread ended up worth $4, but I left a short stock position on, when the Feb weekly 110 Calls were in the money and the Feb 1155 Calls closed worthless last week.  This left me with a short stock position, and I bought stock yesterday for $113.03 making the Call Spread Iron Condor I sold for $1.65 worth $3.03.  Moving on to the next trade.

This helps me conclude that I would rather be a seller of premium than a buyer.  When I looked at this I thought this spread was a great way to define my risk vs reward and make a bet that V does not move over 4% by Friday despite a strong earnings from Mastercard, MA.   

 

Please feel free to email me with any questions at  [email protected].