The day is bright and I am very excited about the strong bullish momentum that saw the S&P 500 crossing the 2050 mark to close at a record high of 2,051.80 yesterday. It is on this bullish note that we will explore bullish options today as opposed to the usual midweek contrarian trade.
Today, we are looking at the options of VeriFone Systems Inc. (NYSE:PAY). VeriFone with its market capitalization of $4.11B is engaged in the business of secure electronic payment solutions. It provides solutions, and services for the financial, retail, hospitality, petroleum, transportation, government, and healthcare vertical markets.
Its system solutions consist of point of sale (POS) electronic payment devices that run its and third-party operating systems, security and encryption software, and certified payment software, as well as other third-party value-added applications.
Silent Revolution in Mobile Payments to Activate Growth
You will remember that retailers have been forced to upgrade their POS terminals after high profile security breach in Target has raised consumers’ concerns about safety of their financial data. As we move closer to the holiday season, with Black Friday, Cyber Monday, Thanksgiving, Christmas and New Year among others; consumers will be pulling out their plastics again and retailers will be vying for a competitive advantage by offering the most secure POS terminal available.
This jostling by retailers to upgrade their POS systems will lead to profitability of VeriFone and ultimately lead to an increase in its share price. Shares of VeriFone have been gaining consistently in the last one month on the strength of an event in the news.
It was reported that VeriFone has announced a partnership with Vantiv Inc. for the targeting of retailers that want to upgrade their POS to be compatible with Apple’s ApplePay and other new payment protocols. A PDQ machine which stands for “Process Data Quickly” is essential for small for small business owners who want to take card transactions for their custommers. In a world where most people want to purchase goods with their credit cards or ApplePay, Having PDQ Machines in your store can be a deciding factor of whether a custommer will buy products from you.
VeriFone is set to release its fourth quarter (Q4 2014) results on December 15 and I am confident that the company will report an impressive quarterly result that will be a catalyst for gains in its share price. You will remember that VeriFone reported an impressive third quarter where it posted earnings of $0.40 per share on Revenue of $476M. The earnings beat marks a 67% annual increase to beat the consensus of $0.35 while the revenue marks a 14% annual increase to beat the consensus of $460.36.
A Look at the Charts
Shares of VeriFone gained 1.68% yesterday to close at $36.99 to mark a 3.43% discount from its 52-Week high of $38.26 and to mark a 63.67% premium to its 52-Week low of $22.60. From the chart above, you will observe that shares of VeriFone have had an impressive rally leading to a 52-week high of $38.26 from January through June. However, you will also notice the $38 resistance point and you will observe the huddling of the lines near that $38 price this month.
How to Trade PAY Options
Interestingly, the fact that VeriFone came up from a $28.50 low in the middle of October to the current $36.99 within one month (Green) to contest the $38 resistance suggests that a breakout is imminent. In addition, the RSI of 36.99 suggests that the buying action is still young and we can expect the stock to breakout before it enters overbought levels.
With this bullish expectation in mind, I recommend buying PAY call options. The PAY Jan 2015 38.000 call (PAY150117C00038000) looks particularly attractive at an asking price of $1.70 and I strongly believe that the contract will be in the green even before shares of VeriFone reach a $39.70 price.
— Daily Option Alerts