Visa (V) has broken back above the 50-day moving average with a slightly improved RS Rating (although it’s still rather low at only 18).
An easy option trade worth looking at on V stock is a bull put spread.
A bull put spread is a defined risk option strategy that profits if the stock closes above the short strike at expiration. To execute a bull put spread an investor would sell an out-of-the-money put and then buy a further out-of-the-money put.
Bullish V Stock Option Trade
Traders who think Visa stock will not drop below 200 could look to sell a March 19 200 put and buy a March 19 195 put.
Yesterday, this spread was trading for around $0.95 which means a trader selling this spread would receive $95 in option premium and would have a maximum risk of $405. That represents an 23.46% return on risk between now and March 19 as long as V stock remains above 200.
If Visa stock closes below 195 on the expiration date, the trade loses the full $405.
The break-even point for the bull put spread is 199.05 which is calculated as 200 less the 0.95 option premium per contract.
If Visa’s stock price drops below 200, I would close the trade early for a loss.
The next earnings release for V stock is set for April 29, so this trade would not have earnings risk. The main downside for the trade is that implied volatility is only 24% which is toward the lower end of the 12-month range.
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
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View more information: https://www.investors.com/research/options/v-stock-bull-put-spread-options-trade/