Visa Inc. (V:NYSE)
Price at Preparation: $267.71 (July 22nd, 2024)

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What they do

Visa Inc. (V:NYSE) is a global payments technology company with a digital payment footprint across more than two hundred countries and territories. The Company connects consumers, merchants, financial institutions, businesses, strategic partners and government entities through their technologies. Visa operates via payment services, providing transaction processing services, including primarily authorization, clearing and settlement to its financial institution and merchant clients through its transaction processing network VisaNet. Looking deeper the company is broken down as follows:

  • Core business solutions include credit, debit, prepaid and cash access programs for individual, business and government account holders.
  • Provide value-added services to its clients, including issuing solutions, acceptance solutions, risk and identity solutions, open banking and advisory services.

Welcome to Theta Bandits Top Pick Tuesday. We strive to bring you relevant free content, scouring the markets and making plans to get ahead of what we think could be new potential winners in any portfolio. A note of caution: Today’s trade is based around the upcoming Earnings Report (ER) and is inherently high-risk.

Visa (V:NYSE) is known as one of two companies to have a lock on the market in the payment space. No matter where you are in the world you will probably be able to pay with a Visa Debit / Credit card. This stock has been a consistent gainer over the years, just holding common shares would have done any portfolio proud. However, that is the long view and today we are going to be executing a quick trade in the plan below.

In the last four quarterly ER’s Visa has not missed their targets, which gives confidence of a high probability for Visa to meet or exceed expectations yet again, resulting in a gain in the stock price. A further quick look at what the analysts covering the stock think. The chart below shows the street consensus with 32 Buys, 10 Holds, 0 Sells and the 12-month Price Targets (PT) as follows:

  • Low: $265.00 USD (-1.01%)
  • Average: $309.66 USD (+15.67%)
  • High: $334.00 USD (+24.76%)

Plan

As usual, find the visual aid below with following colors:

  • Blue: 52-week high.
  • Red: 52-week low.
  • Orange: Support/resistance lines.
  • Yellow: Our plan targets.

As this is a high-risk trade, we have made sure that it is sized appropriately for our risk tolerance as well as only using profits from a previous trade, which mitigates our risk in case our thesis turns out to be wrong and this trade works against us.

We are attacking this with options via a vertical spread trade (bull call spread) shown in the visual aid as the yellow box. The details for the trade are as follows:

  • Buy To Open 2 Visa $270 calls expiring Aug 16, 2024 (Debit)
  • Sold to Open 2 Visa $285 calls expiring Aug 16, 2024 (Credit)

Net Cost:
$860.00 – This price includes both premium paid for the $270 call options and the premium received for the $285 call options.

Potential Profit and Loss:

  • Maximum Loss would occur if at expiration of August 16, 2024, the price of V is below $270. Both options would expire worthless.
  • Maximum Profit would occur if before expiration of August 16, 2024, the price of V is greater than or equal to $285.

This is a completely different style to the way we usually present trade ideas. However, in our community this is a common practice. To learn more, sign up to attend our weekly Theta Bandits Webinar – When we trade together, we learn together!

Why use this method?

Using this type of method on such an aggressive trade provides:

  • Limited risk: The maximum loss is limited to the net premium paid (which was all profit to begin with in this case).
  • Reduced cost: Selling the higher strike ($285 call) helps to offset the cost of buying the lower strike ($270 call), making the trade cheaper than buying only one side of the trade.
  • Profit cap: protection of reduced cost and limited risk comes at a cost; in this case the potential profit is capped at the difference between the strike prices minus the net premium paid.

RISKS

The goal is to grow capital by securing profits along the way and limiting losses. This trade is riskier than our usual picks but notice how we are reducing initial costs and limiting risk with this strategy. Make sure to plan to trade within your risk tolerance or follow the trade along with a paper account while learning.

If you’ve been finding our picks helpful, imagine what the live version holds. You know what to do 👇

Disclaimer: This article is for informational and educational purposes only, not investment advice. We recommend researching and consulting with a financial advisor before making investment decisions. All actions based on this information are at your own risk.

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