Visa showed up on one of my bullish scans as it attempts to break out above resistance.
A cheap way to gain some upside exposure using options is via a bullish calendar spread.
A calendar spread is a trade that involves selling a short-term option and buying a longer-term option with the same strike price.
With Visa stock trading around 214, a bullish calendar spread might be placed at 220.
Estimated Maximum Profit $360
Selling the Dec. 16, 220 call option will generate around $240 in premium, and buying the Jan. 20, 220 call will cost around $580.
That results in a net cost for the trade of $340 per spread. That's the most the trade can lose.
The estimated maximum profit is around $360. But that could vary depending on changes in implied volatility.
The idea with the trade is that if Visa stock trades up to around 220, the calendar spread will increase in value, resulting in a net profit.
Trade Makes Money Between 211 and 231
The break-even prices for the trade are around 211 and 231.
The position starts with a delta of 11. That means the exposure is roughly equivalent to being long 11 shares of Visa, although this will change as the trade progresses.
I would close this bullish calendar spread if Visa stock rallies to 225 or if it drops below 205.
According to the IBD Stock Checkup, Visa stock is ranked No. 5 in its group and has a Composite Rating of 88, an EPS Rating of 92 and a Relative Strength Rating of 81.
It's important to remember that options are risky and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
