The busiest week of earnings season rolls on when Visa reports after the bell Tuesday, and options traders are betting on a big payoff when the payment giant’s results cross the wire.
The Dow component’s shares are up nearly 6% on the year thanks to a 35% bounce off the March lows, paving the way for what traders believe will be an earnings report that surprises to the upside.
“We saw calls out-trade puts by [a ratio of] about 3-to-1 today on above average volume, and right now, the options market is implying a move of about $6 higher or lower, 3% of the stock price,” Optimize Advisors CIO Michael Khouw said Monday on “Fast Money.”
That 3% move would be right in line with Visa’s average post-earnings action over the last eight quarters, but a 3% jump from here would put the stock within striking distance of its all-time highs from earlier this year.
“The weekly options that saw the most opening activity were the 197.5-strike calls,” said Khouw. “Buyers of those were paying about $2.70 a contract. A lot of this was retail traders, it would seem, because the average trade size was about 4 contracts.”
Those contracts break even at an underlying stock price of about $200.20, which is only about 1.5% higher than where Visa closed Monday’s session, about half of the stock’s implied move.
Visa was trading slightly higher in Tuesday’s session.