Tuesday, September 29, 2009

Last Friday was relatively slow, but when one of the Trading RM senior traders saw Mastercard (MA) and Visa (V), he literally jumped out of his seat to alert the room. There had been discussions the day before about the possible early implementation of the CARD Act, which would likely lead to a reduction of credit extended to customers. There were also rumors of a draft bill to create a Consumer Financial Protection Agency, and further talk of interchange fee reform. Whatever attributed to the sector weakness, our traders liked the price action and were ready to take advantage.

As shown in the 5-minute charts below (click to enlarge), both MA and V had accelerating selling on increasing volume. The Trading RM Real-Time chat window (at left below) shows that our traders were buying puts as early as 9:12 CST, with more traders getting involved in both names within the next few minutes. The selling volume stayed strong, and the 5 minute red bars were relatively broad as they closed near lows. The acceleration of the flush raised implied volatility and gave the options an extra boost.

News of the selling came across the wires at 9:20 CST (at middle below); approximately 3-5 minutes after our traders had piled into MA and V. As V started to find support near its 50-period moving average on the daily (top right below), our traders were hitting profit targets and selling into the move between 9:23 and 9:26. As the flush slowed down, our traders exited MA between 9:29 and 9:34. Both MA and V found strong support and bounced with fairly sharp reversals. Any traders that were late to the party and did not hit their profit targets were still able to secure a profitable trade.

By being aware of the assorted downside rumors and paying attention to the accelerated selling, Trading RM traders found a solid sector play and capitalized!

For more information about Trading RM Real-Time, see www.tradingrm.com

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