Can anything stop high-flying tech upstart?
10/05/17

Big tech may be snoozing, but one big options trader is still riding an upstart in the space.

The sector’s brightest stocks have snoozed since the summer. Facebook (NASDAQ: FB) had a monster first half but stalled despite a strong report in July. Apple (NASDAQ: AAPL) also soared on hopes of its new phone but then bled lower. Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOGL) have followed similar paths.

Square (NYSE: SQ), on the other hand, is still making new highs–even though it’s already up more than 100 percent on the year. Yesterday, options volume surged as a trader apparently looked for the run to continue:

  • Roughly 16,000 November 33 calls were bought in two large blocks for $0.70 and $0.80 each. The trades hit about 90 minutes apart near the middle of the session.
  • Matching chunks of October 29 calls were sold simultaneously for $1.37 and $1.67. These seemed to result from existing positions being closed.
  • Averaging them out, they received $1.52 and paid $0.75. That means they collected a net credit of $0.77. Given the fact each contract controls 100 shares, in reality they pocketed $1.2 million.
  • Calls fix the level where a security can be purchased. They often profit to the upside but also can go worthless if no rally occurs. Wednesday’s trader probably made money on SQ’s recent move and rolled their position up in price and out in time. 
  • Why bother? First, they reduced risk by taking money off the table. Second, they now have exposure to the next earnings report on November 8.
Square (SQ) 4/11/17 - 10/4/17 chart

Source: OptionsHouse by E*TRADE.

SQ rose 0.67 percent to $30.14 yesterday, and is up more than 100 percent so far this year. Analysts attribute the gains to higher transaction volumes, market-share growth, and the addition of new cloud-based services.1 The company, run by the same Jack Dorsey who founded Twitter (NASDAQ: TWTR), also wants to enter the banking world.2

While SQ has outrun most other names in the tech pack, it’s been anything but a lone wolf among e-payment peers like PayPal (NASDAQ: PYPL) and Green Dot (NYSE: GDOT). Heck, even old fogeys like Visa (NYSE: V) and MasterCard (NYSE: MA) have outperformed FB and AAPL in the last month. And now here comes holiday shopping at a time when Americans are feeling great about the economy3

Bottom line: One options trader is sticking with SQ as the stock pushes to new highs and earnings approach.

 

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1. Credit Suisse: 2Q17 Preview: Market Pricing In Upside. 7/12/17. Reuters: Square beats expectations on higher transactions. 8/2/17.

2. Marketwatch: Jack Dorsey’s Square seeks to start bank, offer loans. 7/6/17.

3. Marketwatch: Holiday retail sales expected to rise between 3.6% and 4%: NRF 10/3/17. CNBC.com: American optimism about the economy hits an all-time high in new CNBC survey. 10/4/17.