New Trade – $MA: Priceless? Not Quite.

by Enis June 9, 2014 2:03 pm • Commentary

MasterCard has lagged the broader market in 2014 after a huge run between 2010 and early 2014 in which the stock more than tripled.  The stock touched its 200 day moving average in April for the first time in several years, an incredibly consistent uptrend, even for a broad market that has generally been trending higher.

We discussed Mastercard in our post earlier today, Trade Structures in a Quiet Market.  MA has been relatively quiet over the past few months, trading flat since late January, though with some up and down in between.  In today’s post, we wrote:  

Interestingly, the MA July 70/75/80 butterfly has only appreciated to $1.75 from around $1.55 over the past 5 weeks, and the trade structure will appreciate more quickly over the next few weeks if MA remains between $72 and $78.  Since MA does not report earnings until late July, this structure might be a good way to take advantage of continued low volatility.

Well, that’s our favorite trade of the structures that we laid out in that post, as MA is near the $75, and shows little sign of a break technically in either direction.  I bought the structure for $1.88 as the stock has leaked lower in the past 2 hours:

TRADE:  MA ($77.05) Bought Jul19th 80/75/70 Put Butterfly for $1.88

-Bought 1 Jul19th 80 Put for 3.68

-Sold 2 Jul19th 75 Puts at 1.02 each or 2.04 total

-Bought 1 Jul19th 70 Put for 0.24

Break-Even on Jul19th Expiration:

Profits: btwn 71.88 and 78.12 make up to 3.12 with max gain of 3.12 at $75

Losses: btwn 70 & 71.88 lose up to 1.88, btwn 78.12 & 80 lose up to 1.88, below 70 and above 80 lose full 1.88.

Rationale:  We plan to sit on this position at least until the July 4th holiday, unless MA moves above $79 or below $71 prior to that date.  The trade will appreciate more over time decay than because of any directional move over the next few weeks.