Visa reports earnings today after the bell. I expect solid earnings report and a sign of accelerating volume trends from paper to plastic. I also expect the management to reiterate 20% growth in 2010 and beyond.
The stock has fallen from $90 and currently trades at $82.30. Going into earnings, the front month implied volatility in Feb is elevated to 34 while March is at 29. This is not a huge volatility skew, but that's actually common for Visa and it still provides a trading opportunity using the following calendar spread:- Buy to open March $85 calls
- Sell to open Feb $85 calls
The spread is going for exactly $1.00 as of this writing. I like the trade because the break even point on the downside, as illustrated in attached hypothetical P&L chart, is around $80 which corresponds to long-term rising trend line (see daily chart). I would set the stop loss orders to exit the position if it breaks below $80 or shoots above $90. I like the odds.
Good luck!
