Payment systems company Block (SQ) dropped following its earnings report last week. One trader sees shares rebounding in the coming months.
That’s based on the December $50 calls. With 128 days until expiration, 16,004 contracts traded compared to a prior open interest of 193, for an 83-fold rise in volume on the trade. The buyer of the calls paid $17.00 to make the bullish bet.
Shares last went for about $64, making the option about $14 in-the-money, and leaving only $3 in time premium. Block shares peaked near $80 before the earnings-driven selloff. If shares returned to that price, the $50 calls would be worth at least $30, or nearly double their current prices.
While Block dropped following earnings, the company’s Cash App business reported a strong quarter and the firm overall beat on earnings expectations.
Action to take: The company has a strong brand, and its services are enticing to retailers compared to other alternatives, which gives it a leading edge. Shares look oversold following their post-earnings drop, and worth accumulating at current prices.
For traders, the December $50 calls are pricey, but they’re already well in-the-money. They won’t be as volatile as an out-of-the-money call, but could still see high double-digit returns with the amount of time they have to play out.
Disclosure: The author of this article has a position in the company mentioned here, but does not intend to trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.