Visa Stock Ownership Has Its Privileges

Visa (V) shareholders received welcome news yesterday with the announcement of its first quarterly dividend. The company will pay a dividend of $0.105 to shareholders of record August 15th. In spite of the economic downturn and declining consumer sentiment, Visa revenues and profitability have remained strong since its IPO in March of this year.

It appears to me that consumers are turning to revolving credit cards to find liquidity since their home equity has shriveled to nothing. As long as interest rates stay low, consumers will pull out their Visa and MasterCard to finance purchases.

All this adds up to Visa being a continued winner. For investors looking at adding Visa to their portfolio, consider a split-strike risk reversal using options. This type of strategy consists of selling an out-of-the-money put and buying an out-of-the money call.

Selling the Sep 70 put and buying the Sep 85 call for a net debit of $1.30 (based on Wednesday’s close) is one way to express such a bullish sentiment. The risk of this trade is that Visa falls below $70, which means the short put holder would have to buy the stock at a price greater than what is offered in the market.

Another risk is that the stock does not rise above $85 prior to expiration 99 days from now. At that point, both options would expire worthless and the upfront premium of $1.30 would be lost.

The breakeven for the trade would be $86.30, the strike price plus the premium first paid.

For those even more bullish, short puts closer to the current stock price would provide a net credit instead of a net debit.

And don’t forget. Visa will release its next earnings report around July 28th with First Call Research estimating .48 per share profit. Earnings are always a strong catalyst spurring volatility and increased premiums.

That’s what makes options so exciting…the combination of risk, reward, sentiment, timing, and understanding of the market…plus, those using options have a lot of…options.

Disclosure: none

Comments

[timemachine]

I'd like to know if the author is long, short, or playing one or both ends of the "option game" he suggests. In fact, I would like to see full disclosure by every person contributing their thoughts to Seeking Alpha. Enter your comment here

[hidilip1975]

INTERESTING ARTICLE HOWEVER ASPECT IS THAT WHEN YOU SELL PUTS OR CALLS YOU HAVE TO HAVE SOME MARGIN MONEY DEPOSITED WITH YOUR BROKER AND THAT MARGIN MONEY IS SIZEABLE .THEY NEVER MENTION THAT.

[Mikelandia]

Visa? go short. with home equity no longer bailing out people living above their means it's obvious Visa is cashing out. Credit card companies may think they were slick pushing through bk reform laws but I just don't see a rosey picture for this secter. I'm curious about what factors will push this stock higher considering the next wave of defaults.......revolvi... If people aren't paying their mortgages why would the care more about their credit cards? Am I missing something here?

[jsh921]

If people aren't paying their mortgages why would the care more about their credit cards? Am I missing something here?

Yeah, your missing that the credit card companies hold no risk if the buyer defaults- as cramer says Boo Yah

[Frankmeister]

Well said jsh921. Anyone telling you to short Visa is a no-nothing idiot. This stock will pull back only when the market goes WAY down, like everything else. Adding a dividend was genius. The buy back of shares as well as the consolidation with Visa Europe should propel this stock much higher. The worse off the consumer gets, the more he will be using Visa to pick up the slack. Fees are the name of the game. Visa and MA dont lend money! It's a no-brainer play. Short at your own risk!

[Lee N.]

FrankM. I'm with you. VIVA VISA!

[streetwheelz]

Dont forget If you really want to go to a great site about Visa Here It is!!
visaglobalwinners.blog...

[Scott Sweet- Austin, TX]

I only have one concern, as I can't help compare Visa to the MasterCard history and present day.

The dividend is a pittance (in my humble view) and the stock seems to be trading too high based on the P/E. If you apply the valuation of stock price formula of Price = Dividend / (Prevailing Interest Rate - Growth of stock interest rate) and plug in the Price and Dividend announced, you end up with the difference between Prevailing Interest Rate and Growth of 0.13 %. (0.105 / 81.40). This implies to me that the growth of Visa is expected to be no greater than buying a bond in a time when the interest rates are climbing, but still low.

My comparison to MasterCard being that the reversal of this analysis would have MasterCard trading at 465. This is a price that would be fantastic as I’m also long in MasterCard, but 465 is a price that is very unrealistic with the current financial statements. Just for further comparison, AXP results in 1.65%.

I'm no expert and maybe shouldn't post here, but I'm invested in Visa as a long and hoping for the best. Can anyone with more insight that I can muster help me sleep better at night as I continually ride the Visa ship in the turbulent market? Is the IPO price closer to reality or can we expect the steady climb to 100 and above to continue as the market and oil prices allow? I see the future growth in markets opening up to Visa....but I don't see it in the current price or dividend.

On a side note, how can anyone miss the fact that banks assume the liability and not Visa (or MC or AXP)? Thank you jsh921 and frankmeister for “getting it”. Go Visa!

[Scott Sweet- Austin, TX]

Sorry for double comment...registration issues

[Voogle]

Short Visa? You must be brave enough.

V is coming to her 3rd fiscal quarterly report, the biggest event Olympic is runing to us, plus Visa share buy back, plus Visa Eu consolidation...

Short? The chances of win - 0.01%.

[JojoStreet]

Americans can't live without credit cards, even in economic slowdowns. It's the cultural norm. They'll always have at least 2 or 3 credit cards in their wallets and purses.

Emerging countries are starting to catch up as more and more are using credit cards now.

Shopping in the internet is also the norm nowadays and credit cards are a necessity for that.

On a side note, I enjoy reading the SA articles not just because of the authors but mostly because of the educated comments by its readers. Keep it up guys.

[greencapitalist]

ed, good article.

but i would suggest not to recommend option trading as lot of seekingalpha readers might be novices.

always going long on stock and trading around it is a better option.

you can catch up on mastercard which is expected july 28 to 31. last qtr was smash 59 cents, this qtr after double guidance on their conf call, it should be 40 to 70 cents for sure.

have you seen a stock that if beats by 15 cents is considered a miss!!!!. it is our super ma. catch up on mastercard at my blog matrader.blogspot.com

[User 127919]

visa is a 280.00 dollar stock .... now they started to pay dividend.

[bearfund]

Short V? You'd have to be insane. But a 0.5% dividend isn't going to make me buy it, either. If anything this helps establish its value well below the market price. But bulls will be bulls so I'll continue to stay away.

[meiusa]

Visa is both a value and growth stock. if you hold long enough, you will never lose money. This is for sure. It collects the money through transaction fees forever. It's easy money maker.

[Cat~eyes]

I must agree with the masses here and say that to short Visa is to shoot yourself in the foot! For those saying the dividend is too small, keep in mind it's only been public for a few months. Rome wasn't built in a day, and we'll see those dividends adding up as the years progress. Did anyone really expect a large dividend for their first one? I think not.

Visa is a train we should all get on and stay on. Keep a core position and trade around the edges, but unless you're interested in selling yourself short...don't short Visa.

For all you Visa-lovers, come on over to VisaGlobalWinners.blog...

We blog about all things Visa, in addition to other events in the market of interest. Look forward to seeing you on the other side!

[galen clittle]

Buy and hold V for as long as possible.

[Ed McDaries]

Thanks for the comments from everyone!

To clarify, I have no positions at all on Visa. The point of the article and the options discussion is merely to provide color and a few examples of how you can use options to express a sentiment toward a specific symbol.

For too long now, we have been told that options are "risky." From my perspective, owning a stock outright with no protection at all is the riskiest position of all.

For example, how many long stock holders of BSC had put protection on their positions prior to their blow-up?

Most long stock holders do not realize they can put a protective collar (a combination of a long put and a short call) on their stock positions at almost no cost (except commissions) to lock in profits and provide downside protection. This is not a complicated options strategy and would cost roughly $15-$20 to put on. How much do you pay in premium to provide coverage to your car and home? And how much to protect your portfolio? Think of options as a portfolio insurance policy.

If you seek alpha and do no nothing to protect it, you will end up omega.

[Whiz201]

Great article.

I would hope that folks who are on a site named 'Seeking Alpha' would know what options are.

The best way to seek alpha, in my opinion, is to not lose any. Hedge with options!

And I've stopped owning stock...stocks can go to 0, I am living proof. With options, all I can lose is the premium I paid.

Ed - nice site for options traders, well done!

Former Army Ranger, Nam '69.

[GreatAnalyzer]

usually bank will take back the visa card from those foreclose their houses. when foreclosure keeps climbing, visa rev should decline.

the author failed to elaborate why bullish on V. IPO? 52 wk high?

[GreatAnalyzer]

tiny dividend gives V a bullish sign? how about visa card taken from those who foreclose the house? how about the EU fee take away? how about discover suit? how about unlock on the stock option?

[Caleb]

Frank I concur.....this guy is an idiot and I believe he once said that he sold ALL 70 shares around 60 something that he had and then it turned around the next day and went up three or four dollars. (And we know where the stock is now) Who the h*ll gives advice to sell short on a stock like this????? GO VISA!!!!

[Caleb]

Frank you're on the money with the last comment!

[spc4l]

Frank, gooooood bro, i send your comment to his own blog,

[V Winner]

You all know me as the #1 most bullish investor on V since day 1.

I posted more than 250 comments on V on seeking alpha since the day it went public.

I am not posting comments on this site anymore about V (including right now). I am, however, going to make a comment on why I stopped posting on Seeking Alpha.

If you are an intelligent person you will understand why I did so and why I started a blog of my own.

When I first came to Seeking Alpha my biggest problem was that the authors were unqualified- at least when it came to Visa. At least it wasn't a google or yahoo finance where most of the time spent on the site is bashing other members, and NOT in discussing the stock.

If you play with pigs long enough you will get dirty. When I found myself arguing with total strangers instead of focusing on the stock I woke up. I listen to some of the comments here and it reminds me of why I stopped posting.

When I listen to a Frankmeister- I have to say you don't sound educated or like a person that has any money. You sound like a moron. You may be a "bully" on this site but man-to-man you would cower at my feet. It is easy to be a tough guy behind a keyboard. Your message gets clouded by your ignorance.

I'm more gung ho on Visa than anyone on this site. I've gotten hundreds of people involved in the stock. I trade the stock and the options as well as maintaing a core position.

You will find that the more time you spend fighting battles that make you NO MONEY- the less you will achieve. I'm not here to pitch my site- I am here to tell people that this site has a chance to be better than a google or a yahoo- and I hope some of you wake up to how you are spending your time.

THAT is my contribution.

[mrbill for V]

V Winner you hate Seeking Alpha so much you can't stay away? why don't you take that screwball" Frankmeister" with you back to your site? P.S.
no one cowers at your feet "Big Money"

[greencapitalist]

friends, no fighting please.

if you had got visa at 56, 60, 65, 70, 75, 78 - DO NOT SELL. have this as a core position and trade around and buy/sell around the core position that visa is trading which is 80 to 88.

if you had got ma at 150, 190, 220, 270, 280 - DO NOT SELL. have this as core and trade around ma which is ranging from 280 to 300.

both are superstars and for BIG TIME buy/hold.

check my blog on ma at matrader.blogspot.com

[Frankmeister]

Oh my God, I finally agree with a post by Greencapitalist!!

[Anthony5000]

Vwinner and Frankmeister

Come on guys can't we all get along. Lets all just talk about what we all came here to talk about. Visa. I will admit that i am not as experienced as any of you but i would just want to hear what you all have to say about Visa. How does everyone or anyone think about the economy and how it effects Visa? Or what about some gas stations not allowing people to pay with credit cards?

[Cat~eyes]

Here's a link to the Webcast of VISA at the UBS Electronic Payments Summit from June 4, 2008. Elizabeth Buse, Global Head of Product for Visa, is the speaker. The audio is approximately 30 minutes long. It updates Visa's stats and plans for the future we last heard about during the Q2 earnings report.

For Real Media Player: CLICK HERE

For Windows Media Player:
CLICK HERE

As always, for news of all kinds related to the market, but with Visa at its core, come on over HERE!!

[Cat~eyes]

Hmmm. HTML doesn't work here. Dangit! :)

For Media Player: events.streamx.us/US/e...

For Real Media Player:
events.streamx.us/US/e...

[NiagaraJ]

Do not overlook all the HSA's and Flex accounts out there that use Visa and MC.

[Plantinseeds]

Personally I really like the authors post. Very informative for this novice investor. I had tried to learn about some opton ideas when I belonged to the original Vwinners rah rah rah visa blog but, was... well.... we know what happened.
I did not know that there was a way to protect from a drop of a posistion except for the trailing loss deal that I do not like.

As for Seeking Alpha I learn more here, the pro and con to every authors statement. A lot of the commentors are very wise investors, while others...... :( I do wish that SA would install language filters though. The report abuse feature is great and actually used the 1st time for these comments.

I know that "cat" and others mean well when they include their own blog address in their comments but, Visa global is way too 1 sided.
That has been the problem all along with your blog.

Once when I posted that Visa was in a holding pattern @ $85 and most likely dip back to around $76 ...... well it was like I had committed the ultimate sin. I was kicked off the site, recieved many e-mails stating that I was not for visa and that I was not a team player because of being nuetral on the stock ( when I wasn't ) and that I must not be a true Christian.
I think it was 2 weeks later and V dropped back to $74.98 before climbing the ladder back to $85..... :)

Frank I do understand your frustration with some folks that tend to know whats best for others, but don't you think that you would have so much more of an impact if you left the street slang somewhere else?

Again great article, most comments great also. Visa all the way till we are called home.

[V Winner]

Yes- Seeking Alpha is a good place to learn about V and other stocks.

The reason for the blog Plantin is to be constructive- we are a bullish Visa site- simple as that.

I don't know why anyone would have a problem with a site that believes strongly in a company and supports its growth.

I do hope you are doing well - you seem like a nice guy- a little bit of a Jesus Freak- but I'd rather see that than a group of women walking around with Burkas :)