A strategy idea for options trading investors.

TRADE COMMENTARY: Visa (NYSE:V) Weekly Options

Visa is due to announce earnings on July 27. The stock recently had a decent run and received some favorable court rulings. We think Visa will have earnings that are decent or in-line. This is a way to play the stock with a smaller dollar outlay than an overwrite (buy-write) strategy where you buy the stock and sell the call.

This trade uses the Weekly options that began trading this week and expire on Friday, July 29.

With V trading at 89.50, we buy an in-the-money Weekly call at the 87.5 strike, and sell an out-of-the-money Weekly call to gain premium and lower our costs. No matter what Visa’s earnings are … the most we can lose on the trade is $2.70. If we end up owning the stock after earnings (the 87.5 calls remain in the money, and the 92.5 calls expire worthless) we would then look to sell August 92.5 or 95 calls depending on where things are for the company.

DATE: July 21, 2011

STOCK/INDEX: Visa (NYSE:V)

STOCK PRICE: 89.50

NEXT EARNINGS: July 27, 2011

OPTION PLAY: Weekly Option Call Spread

SELL: JULY 29, 2011 expiration, V 92.5 Calls @ $0.55

BUY: JULY 29, 2011 expiration, V 87.5 Calls @ $3.25

NET COST: 3.25 – .55 = $2.70

UPSIDE BREAKEVEN: 87.5 + 2.7 = $90.20

MAX PROFIT: 92.5 – $90.20 = $2.30

MAX LOSS: 3.25 -.55 = $2.70

CALL AWAY % RETURN: 2.30/2.70 = 85%

Stutland Equities is a premier futures and options trading company on the Chicago Board Options Exchange. Founded in 2005 and headquartered in Chicago, Stutland Equities specializes in volatility arbitrage across multiple asset classes.