The Tech Stock Throwing Up A 'Buy' Signal

SQ options traders remain focused on call options

Patrick Martin
Dec 29, 2017 at 1:19 PM
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Despite its forays into bitcoin, payments platform Square Inc (NYSE:SQ) has struggled to translate that buzz into stock momentum. Still, Square shares have added 154% in 2017, even though they're down 2% today to trade at $34.42. The SQ pullback could be a buying opportunity, however, as it's now within one standard deviation of the 80-day moving average, a trendline that has offered support since August 2016.  

According to Schaeffer's Senior Quantitative Analyst Rocky White, following the last three pullbacks to the 80-day moving average in the past three years, the payment processor was up an average 16.24% one month later, and was higher all three times. If past is precedent, a move of similar magnitude could put Square stock back atop the $40 level. 

Pullbacks SQ Dec

A short squeeze could provide more fuel for a Square rally. Short interest increased by 7% during the last two reporting periods to 36.83 million shares, a record high. This represents a healthy 10% of SQ's total available float.

In the options pits, call buying continues to be prevalent. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows SQ with a 10-day call/put volume ratio of 3.82, which means calls have outnumbered puts by a nearly four-to-one ratio in the past 10 days.

Digging deeper, the January 2018 42-strike call has seen the biggest increase in open interest during this time frame. According to data from the major options exchanges, most of the activity here was of the buy-to-open nature, which indicates options traders are banking on a swift recovery from SQ stock at the start of the new year.

Furthermore, Square stock has tended to reward premium buyers over the past year, based on its Schaeffer's Volatility Scorecard (SVS) of 89. In other words, it has regularly made bigger-than-expected moves on the charts on the past year, compared to what options traders had priced in.


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