Shares of Visa (V) got crushed on Wednesday after a federal judge said the Federal Reserve had violated Congress' wishes when it set a 21-cent per transaction limit on credit card charges per transaction. The judge said the limit was far higher than Congress had intended.
The news is considered a victory for retailers but at the expense of Visa and MasterCard (MA). The European Union proposed similar caps earlier last month. Weakness in the shares is a rarity for either company lately, both Visa and MasterCard have doubled in the last two years.
OptionMonster.com's Jon Najarian says that while Visa and MasterCard continue to be "monsters" there's a way to play without so much legal exposure. "If you wanted to migrate away from those that have the kind of issues that MasterCard and Visa could have, you could go after one of Leon Cooperman's picks, Capital One Financial (COF)."
MasterCard has managed to shake off the weakness after reporting stronger than expected earnings on Thursday morning. Visa has not. In terms of the trade, buying the dip has been a money maker in the credit companies as a slowly improving economy keeps Americans spending.
The most likely outcome of the court cases, at least in the U.S., is that fees won't get permanently dropped much below the 21-cent limit set by the Fed. There's too much money on either side of the lobbying pool and consumer protection efforts tend to lose steam in improving economic environments, even during recoveries as tepid as this.
As an options trader Najarian sticks with the lower priced alternatives where the action is more liquid.
"As far as buying on dips, I think you're going to be a happy camper by the end of the year again this year, just like you were last year, just like you were the year before, if you were in Master or Visa."
[At the time of publication Jeff Macke was long shares of Visa]
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