Visa Stock Offers Potential 17% Return For Bullish Option Traders

This type of trade will profit if Visa stock trades sideways or higher, and even sometimes if it trades slightly lower.

Visa Stock Offers Potential 17% Return For Bullish Option Traders

The technicals of the (V) share are very good.

Visa is ranked number one in the IBD Stock Checkup. Visa stock is ranked No. 1 in its industry. It has a Composite rating of 96 and an EPS rating of 93.

We'll be looking at the bull put spread today. Remember that a bull-put spread is a risk strategy with a clearly defined outcome. You know what the worst case scenario will be in advance.

This trade can be profitable if Visa stocks trade sideways, higher or even if they trade slightly lower.

If we used the expiration date of June 16, we could buy a put at 215 and sell it for 220, if Visa was trading at 231.

This spread could be sold for $75 with a maximum of $425 risk.

If the spread is worthless at expiration, this would mean a 17.65% gain in less than a month, assuming Visa's stock price is higher than 220.

If V stock closed below 215 at the close of business on 16th June, then there would be a maximum loss. The premium seller would lose $425 in the transaction.

Break-even for this trade is calculated by subtracting 220 from the $0.75 premium per option contract.

Set Stop Losses To Avoid Large Damage

If Visa's stock falls below 220, I would put a stop-loss in place. A good rule is to limit your loss to the premium you received. This would be $75.

If the trade does not go well, sticking to this level of stop loss will prevent large losses.

Investors can lose their entire investment if they choose to invest in options.

This article is intended for educational purposes and does not constitute a recommendation to buy or sell. Always do your due diligence before making any investment decision.