MA: Charge Into Earnings

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There are many good reasons to hate credit card companies. These companies charge large fees, take a cut from the retailer which raises prices, etc. They also take a cut from the users, albeit an annual fee or in interest rates and late charges (for the less organized). The rates they charge, in a time where the 30 year is at near historical lows do not seem to have fallen the way a 30 year fixed mortgage has fallen.

It's all of these reasons that people hate the credit card firms...and I love them. They are some of the most efficient churners of money out there (if not the most efficient). The only things that seem to really affect their earnings growth are:

1. A slow down in the consumer

2. Regulation

The good news, in the US we continue to spend and have children (which increases the companies base of users). The companies are expanding all over the world into new markets and financial instruments (how anyone would pay $4.95 for a $100 dollar Visa Gift card is beyond me, just give the bloke a C-Note and spend the $5 on a something special for the lady).

This Christmas was a better than expected. It also likely represented the least amount of cash ever used. I think the credit card companies are going to surprise already incredibly loft expectations. To make matters better, volatility on the options of Visa (V) and MasterCard (MA) are somewhat muted.

Before we get into the options trade, let's review the T3/OP video with JIll and Scott as they walk us through the fundamental and technical case for the stock:

As Jill pointed out, MA reports February 2. Ahead of the print, I would like to set up a trade that is currently long vega, but gets short vega. Let's set up a bullish butterfly that we can ride ahead of earnings, or even into earnings.

Trade: with MA trading $356.25, buy to open 1 MA February 380 call for $7.20, sell to open 2 MA February 400 calls at $2.85, and buy to open 1 MA February 420 call for $1.05.

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At the time of publication, Mark Sebastian, Jill Malandrino and Scott Redler held no positions in the stocks or issues mentioned.