Call Traders Cash In on Square's Big Bitcoin Gains

SQ is pulling back from the latest in a string of new record highs

Nov 22, 2017 at 2:49 PM
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Earlier today, Square Inc (NYSE:SQ) stock hit a new record of $49.55 -- marking its 10th consecutive session of all-time highs, fueled in large part by optimism over the mobile payment company's recent move to allow its customers to buy and sell bitcoin. However, SQ has since reversed course to trade down 1.7% at $47.24, on pace for its first daily loss in over a week.

Meanwhile, the recent crop of SQ options buyers are taking some profits off the table. Call volume on the tech stock has ramped up to roughly 96,000 contracts -- tripling the stock's expected intraday volume -- and the most active strike is the January 2018 45-strike call. A total of 8,725 contracts have traded here on open interest of 12,943, with some players likely taking quick profits on Square's recent breakout.

As recently as Monday, in fact, over 2,000 contracts were bought to open at the January 45 call, per data from the major options exchanges. The option's volume-weighted average price (VWAP) that day was $3.52, compared to today's VWAP of $5.14 -- so the option has gained about 46% in just a couple days.

SQ call volume has been steadily gaining momentum alongside the share price -- but it's not a particularly attractive time to buy short-term premium on the payment services provider. Trade-Alert places the stock's 30-day at-the-money implied volatility at 54.4%, which ranks higher than 93% of other such readings over the past year. In other words, short-term options on Square stock have rarely priced in steeper volatility expectations.

That said, there's still plenty of contrarian fuel to keep the stock's uptrend going strong. As of the latest reporting period, a healthy 8.7% of SQ's float was sold short, representing four full days of pent-up buying pressure, at the equity's average daily volume.


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