MasterCard (NYSE: MA - option chain) shares have jumped higher today after the company posted a third-quarter profit excluding one-time charges of $322 million, or $2.47 per share, easily topping analysts' projections of $2.25 per share. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on MA.MA opened this morning at $159.00. So far today the stock has hit a low of $155.61 and a high of $163.03. As of 11:50, MA is trading at $164.91, up $21.02 (14.6%). The chart for MA looks neutral and S&P gives MA a 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $115 range.
A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just seven weeks as long as MA is above $115 at December expiration. MasterCard would have to fall by more than 30% before we would start to lose money. Learn more about this type of trade here.
MA hasn't been below $120 at all in the past year and has shown support around $135 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in MA.
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Reader Comments (Page 1 of 1)
11-04-2008 @ 3:53PM
Iridium said...
Although Mastercard doesn't issue cards and makes money on every transaction you have to look at the future.
Card issuers are scaling back and many people are finding thier limits reduced.
The ammount of total transactions using credit cards will probably decrease as people cut back. With the ammount of pending defaults millions of credit card users are going to find themselves without the ability to use plastic.