Shares of payment company Block (SQ) have been in a sharp downtrend with other tech names in the past few months. One trader sees that trend continuing indefinitely.
That’s based on the December $90 puts. With 221 days until expiration, 1,329 contracts traded against a prior open interest of 109, for a 12-fold rise in volume. The buyer of the puts paid $18.20 to get into the trade.
The stock last went for around $100 per share, so it would need to decline about 10 percent for the option to move in-the-money. Given that the stock is down about 50 percent over the past year, and over two-thirds from its peak, a further 10 percent drop by the end of this year seems easily achievable.
Block is currently not running a profit, although revenue is up 29 percent over the past year. And the company has an even amount of cash and debt on its balance sheet, so while shares could get weaker, it’s financially strong enough to survive.
Action to take: Over the past few weeks, drops into the low $90 range have been a good time for picking up shares, which have quickly had some double-digit moves higher. If that trend continues, traders should look for such a drop before going long shares.
Given where shares are after earnings and the current market weakness, traders should consider these put options. They’ve got a long time to play out, and can likely generate mid-double-digit gains.
Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.