Unusual Options Activity: Block (SQ)

Digital payment system operator Block (SQ) is up 14% over the past year, far lagging the overall market, and now in a downtrend. One trader sees shares continuing lower in the months ahead.

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  • That’s based on the August $62.50 puts. With 80 days until expiration, 7,482 contracts traded compared to a prior open interest of 119, for a 63-fold rise in volume on the trade. The buyer of the puts paid $3.85 to make the bearish bet.

    Block shares recently traded for about $67, so they would need to drop about $4.50 for the options to move in-the-money. The strike price is closer to the stock’s 52-week high of $87.52 than the low of $38.85.

    Block has been a strong performer over the past year, with earnings surging 380%. But concerns of a slowdown in consumer spending are also impacting shares are there may be fewer financial transactions.

    Action to take: If shares don’t find support here in the mid-$60 range, as they have in the past few months, they may trend lower.

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  • If they find support, shares could bounce higher from here in the coming months. For now, investors should try and buy in the low-$60 range and build on that position following a drop.

    For traders, the August puts could deliver mid-to-high double-digit returns on a break lower for shares. Traders will likely have some time to exit the trade if it starts to break the other way.

     

    Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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