Visa (V) is going to announce earnings after market close on Monday. I have covered earnings quite extensively and still continue to do so. It never stops amazing me how much movement happens during this time and the endless questions I get on how to play earnings. Being an income trader, I want to play the “most speculative” event in a way that reduces my losses if it goes against my “Bias”.

In addition to many ways I mentioned earlier, here is one additional way for a bullish biased earning play.

This a call diagonal spread. (Sell May 85 Call/Buy June 90 calls = Debit $0.15) Based on the current IV profiles, the trade has a risk of $0.15 on the lower side if VISA (V) stays below $67 by May expiration, similarly has a risk up to $515 if V stays above $91.3 by May’08 expiration. I personally forecast it to touch $85-$88 if VISA surprises and moves -up. If that happens my rewards will be $324 for every $0.15 downside risk (and $500 on margins). Of course the IVs will be crushed after the earnings announcement and therefore one needs to run a stress test on what level do you expect it to fall and also analyze the IV skew as results will vary depending upon IV crush of each leg.

For an upside, if V continue to trend higher, one may look to convert this into another spread i.e. calendar, double diagonal, fly, vertical spread and many more ideas so that maximum risk is never achieved rather it still makes money even though it goes beyond my forecast levels.

Don’t forget the mighty backspread as well which (depending upon your views of the VISA (V) movement) may be even a superior play. If you wanna stay out, check it out via paper trade. Oh BTW, similar strategy can employed on Mastercard (MA) as well.

Profitable trading, OP