Time to Strike on Square Stock

SQ options are attractively priced at the moment

Managing Editor
Mar 1, 2019 at 11:39 AM
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Square Inc (NYSE:SQ) had a roller-coaster earnings reaction yesterday, falling to $74.57 at its session low, only to erase those losses and close up 2.4% at $81.24. Although the stock is down 3.5% to trade at $78.08 today, it is trading near a trendline that has historically bullish implications.

More specifically, Square stock is trading near its 20-day moving average. The previous five times SQ pulled back to this moving average after a lengthy stretch above it, the equity was up 7.8%, on average, one month out, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

A move of similar magnitude would put the equity back above $84 by April, an area not topped on a daily closing basis since a mid-October bear gap. Since successfully testing the round $50 level on Christmas Eve, SQ has added 57%. And even with today's drop, the security is still heading toward its fourth straight weekly win. 

Despite the shares adding 70% in the last 12 months, analysts remain quite skeptical of Square stock. There are 29 brokerages covering SQ, and 15 rate it a "hold" or "strong sell." And even with a price-target hike today from BMO to $98 from $96, the security's 12-month average price target of $82.13 is a slim 4.7% premium to its current perch.

Daily Stock Chart SQ

With the uncertainty of earnings out of the way, now might be an attractive time to bet on SQ's next leg up with options. At last check, the equity's 30-day at-the-money implied volatility was perched at 41.5%, in the 19th annual percentile, meaning near-term options are relatively cheap at the moment. 

 

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