Square Stock Sell-Off Sparks Accelerated Options Trading

Short-term volatility expectations have ramped up on Square

by Karee Venema

Published on Jan 3, 2019 at 2:58 PM

The shares of Square Inc (NYSE:SQ) are down 8% at $52.59, after Mizuho cut its price target on the stock to $75 from $95. But while the brokerage firm tapped blue-chip Visa (V) as its "top pick" among U.S. payment processors, it said Square was still attractive and the company's expansion into new markets will help drive revenue growth.

This downside just echoes SQ stock's recent technical struggles, with the shares spending the fourth quarter in a channel of lower highs and lows. Square recently bounced from the round $50 mark during the Christmas Eve sell-off -- near their April highs -- but are running into resistance at their 320-day moving average. Given the equity's impressive surge in the first three-quarters of 2018, it's still boasting a 41.6% year-over-year gain.

square daily chart jan 3

Amid today's volatile price action, options volume is running at a slightly hotter-than-usual clip, with 45,300 calls and 30,250 puts on the tape. The January 2019 85-strike call is most active, but Trade-Alert suggests one speculator may be buying to close some of the short leg of the call ratio spread that was initiated back in late November.

Elsewhere, the weekly 1/4 series is popular, though short-term traders appear split in their outlooks. Call and put buyers appear to be initiating new positions at the 53- and 53.50 strikes, betting on where SQ stock will finish when the options expire at tomorrow's close.

Meanwhile, Square's 30-day at-the-money implied volatility (IV) of 64.7% ranks in the 88th annual percentile, meaning near-term options are pricing in higher-than-usual volatility expectations at the moment. Plus, its 30-day IV skew of 13.6% registers in the 96th percentile of its 12-month range, suggesting puts are more pricey than their call counterparts, from a volatility perspective.

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