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].