Payment stocks are in a precarious position.
Monday’s trading session was painful for shares of payment giants PayPal, Visa, Mastercard and others as investors shied away from growth plays and positioned for safety.
At the same time, some traders were actively betting against the payment space, particularly in the stock of Visa, which saw twice its average daily options volume, Brian Stutland, trading expert and chief technology officer at Equity Armor Advisors, said Monday on CNBC’s “Options Action.”
“All of a sudden, option volume … started to explode” as the broader market rolled over despite an earlier upgrade of Visa shares from Citigroup analysts, Stutland said.
One of the most active trades was a purchase of the $180 put options expiring Friday, Sept. 13, bought for an average price of roughly $1.38, he said.
That’s “basically saying, ‘Hey, the stock, by this Friday, could hit $178 to the downside here,’” Stutland said. That trade was already playing out on Tuesday as Visa’s stock fell nearly 3% to just below $177.
“As the market started selling off lower here, stocks like Visa and Mastercard started selling off harder. These put traders [are] basically betting that there’s more downside here,” he said.
And, with Visa and Mastercard trading at sky-high price-to-earnings multiples and Visa paying out a considerably small dividend yield, the group is “not that exciting” to Stutland.
“When you look at valuations and stock markets trading near all-time highs, maybe it’s time to just take some profits in … some of the growth names that got hit today,” he said.
But the pain won’t necessarily last, according to Carter Worth, chief market technician at Cornerstone Macro.
When a number of stocks are heading sharply higher, it’s not uncommon that “you start to lose one, you lose another, meaning they actually start to roll. But others persist,” Worth said in the same “Options Action” segment.
“Then you start to see cracks in those that have persisted, and that’s what we’re starting to see. We saw it in things like MarketAxess, in FICO. We saw it a little bit in McDonald’s,” he said. “So, the last holdouts, the money gets nervous and, ultimately, the big ones, the biggest ones — it’s Visa, it’s Microsoft, it’s Mastercard — why can’t they get back? Stocks have a way of giving back after having great run-ups.”
Guy Adami, director of advisor advocacy at Private Advisor Group, agreed, adding in the same segment that he’d want to own Visa through its end-of-October earnings report.
Visa is up nearly 33% year to date.