Yesterday I discussed the increasing optimism on Visa Inc (V). After the close I noted the company reported better-than-expected earnings and the stock was showing a slight after-hours gain. However, that bounce failed to translate into the session here as the stock gapped down at the open. The intraday chart shows the action for the last 5 days.

Chart Courtesy of Thomson Financial

I left last night noting that a lot could change between then and today's open and that caveat held true. Of course, this chart also shows that a lot has happened between the open and now as we find the stock attempting to bounce back.

Obviously, there are a lot of factors at play here but I think that part of the lackluster reaction has to do with the optimism that built up. Expectations got a bit ahead of themselves so it was hard to generate additional enthusiasm. In simplistic terms, think of it like this - have you ever felt disappointed after watching a movie that everyone said was so great? While the movie may have been good, it just didn't live up to hype.

When I left last night I said I would revisit the situation today and what I had in mind was a quick check of pre-earnings and post-earnings option prices. The table below shows a couple of near-term options along with the stock performance.

The option prices are based on yesterday's closing ask and today's current bid. The stock performance is yesterday's close to the last traded price when I captured this today. The stock was down 3% when I captured this but this isn't helping option players. The calls are on the "wrong" side of the trade while the puts are only at breakeven. Part of this can be explained by a drop in implied volatility. For example, at last night's close, my quote system shows the August 75 put had an implied volatility of 75%. The implieds on that option are down to 52%.

There is nothing too surprising about that though. An earnings report brings the potential for a good deal of volatility so the options are priced to reflect that potential. After the report comes out and the reaction has had a chance to stabilize, the volatility expectations are readjusted. However, while this isn't "surprising", it is something that option traders need to be aware of.

As far as my outlook from here, I will now be watching the recent lows near 66. The stock appears to be in the process of trying to break the near-term downtrend and I would give that effort the benefit of the doubt as long as the shares hold above the mid-month lows.

Chart Courtesy of Thomson Financial