After its two-month ride on a merry-go-round, Visa Inc (NYSE:V) is finally ready to start trending again. Spectators tiring of the pause have earnings to thank for its sudden strength. Yesterday’s rally brought V stock to the brink of a major upside breakout.
Source: Kārlis Dambrāns via Flickr
Visa’s recent consolidation pattern took on the form of an ascending triangle with $125 proving impenetrable resistance. At the same time, strength was building beneath the surface creating a series of higher pivot lows. Given the weakness striking the broader market, V stock has actually held up quite well in recent months. Chartists call that relative strength, and it’s yet another feather in the bulls’ cap here.
Think of it this way. While the S&P 500 remains well off its peak (7%, in fact), Visa is already flying to new heights. Stocks that hold firm during market corrections are often the first to turn higher and become market leaders. Visa shares are following this script to the “T” right now.
High volume accompanied yesterday’s breakout, adding legitimacy to the victory. A groundswell of participation increases the likelihood that the resistance breach has staying power.
That has me thinking any dips in the coming days should prove shallow as spectators who missed the breakout swoop in to capitalize on the second act.
Bank on Visa Bulls
On the implied volatility front, premiums are shrinking in the post-earnings volatility crush. That makes buying options a cheaper endeavor than they were just a few days ago. While the IV descent may persist for a few days yet, I like the idea of buying premium here.
If you think Visa can continue to climb, then buy the July $125/$135 bull call spread for around $4.25. As with our usual debit spread suggestions, the risk is capped at the initial cost. In this case, you’d have to ride all the way to expiration and have V stock sitting below $125 to incur the loss.
The max reward is $5.75 and will be captured if the stock can rise above $135 by expiration.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
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