DailyPlay – Opening Trade (V) – November 1, 2022

V Bearish Opening Trade

View V Trade

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish

Details: Buy to Open 4 Contracts Dec. 16 $205/185 Put Vertical Spreads @ $5.10 Debit.

Total Risk: This trade has a max risk of $2,040 (4 Contracts x $510).

Counter Trend Signal: This is a Bearish trade on a stock that is experiencing a bullish trend.

1M/6M Trends: Bullish/Bullish

Technical Score: 9/10

OptionsPlay Score: 141

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry.

Investment Rationale

I’ve been keeping an eye on Visa after taking a short position earlier this year, and I see a similar setup after earnings last week. Despite reporting “strong” earnings that beat analyst expectations, raising dividends and authorizing $12B in share buybacks, the stock has rallied up to two major resistance levels. I see this post earnings rally as an opportunity to seek short exposure on Visa rather than a reason to be a buyer.

There is no doubt that Visa is the dominate player in a world shifting to all digital, but the economic headwinds and the rich valuations are concerning. Trading at a 50% premium to the market (25x next year’s earnings) in an economic slowdown and expecting only 10% EPS growth next year is simply too high in my opinion. Couple this with the stock trading up against the Weekly Cloud bottom and its 16-month bearish trendline aligns the timing with my fundamental view. I’m using this opportunity to buy a Put Spread on Visa expiring in December to target a $185 target and cutting losses if we see Visa breaks above the trendline and weekly cloud model.

Buy to Open V Dec $205/$185 @ $5.10 Debit

Visa – Weekly