American Express Surpasses Other Credit Cards In Sales

MasterCard's credit card purchase volume was $115 billion in the first quarter of 2011, a 5 percent increase compared with the year earlier. While the company does not break down that spending, it said its consumer credit card spending rose. It was essentially flat in the fourth quarter of 2010 and negative going back to the second quarter of 2008. Analysts said that could mean consumers were returning to discretionary spending. "As the company looks to move beyond traditional charge and credit products, expanding our distribution network to new and innovative locations like post offices is key to accelerating the company's growth in new payments and digital platforms," said Alpesh Chokshi, president of Global Payment Options for Amex, in a statement.

Actual Costs
While market competition usually drives prices towards actual costs down, plus reasonable profits, the credit card companies and banks have put together cartel-like arrangements that have sidelined normal market dynamics. Three card companies – Visa, MasterCard and American Express – account for some 80 percent of cards. They recruit banks to their networks by promising them the major cut of the average 2 percent swipe fees added to every card transaction. The banks then use of big slice of the fees they collect to attract new, well-to-do subscribers with reward program financed through these fees.

Trading
American Express (NYSE:AXP) closed Thursday's positive trading session at $49.54. In the past year, the stock has hit a 52-week low of $37.13 and 52-week high of $50.47. American Express stock has been showing support around $48.94 and resistance in the $50.10 range. Technical indicators for the stock are Bullish and S&P gives AXP a positive 4 STARS (out of 5) buy rating. For a hedged play on this stock, look at the Jul '11 $49.00 covered call for a net debit in the $47.42 area. That is also the break-even stock price for this trade. This covered call has a duration of 64 days, provides 4.28% downside protection and an assigned return rate of 3.33% for an annualized return rate of 19.00% (for comparison purposes only). A lower-cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the AXP Jan '12 $35.00 call and selling the Jul '11 $49.00 call for a total debit of $13.03. The trade has a lifespan of 64 days and would provide 3.05% downside protection and an assigned return rate of 7.44% for an annualized return rate of 42% (for comparison purposes only). American Express has a current annual dividend yield of 1.44%. [ABR-Seven Summits Research]