Digital payment system operator Block (SQ) is up 14% over the past year, far lagging the overall market, and now in a downtrend. One trader sees shares continuing lower in the months ahead.
That’s based on the August $62.50 puts. With 80 days until expiration, 7,482 contracts traded compared to a prior open interest of 119, for a 63-fold rise in volume on the trade. The buyer of the puts paid $3.85 to make the bearish bet.
Block shares recently traded for about $67, so they would need to drop about $4.50 for the options to move in-the-money. The strike price is closer to the stock’s 52-week high of $87.52 than the low of $38.85.
Block has been a strong performer over the past year, with earnings surging 380%. But concerns of a slowdown in consumer spending are also impacting shares are there may be fewer financial transactions.
Action to take: If shares don’t find support here in the mid-$60 range, as they have in the past few months, they may trend lower.
If they find support, shares could bounce higher from here in the coming months. For now, investors should try and buy in the low-$60 range and build on that position following a drop.
For traders, the August puts could deliver mid-to-high double-digit returns on a break lower for shares. Traders will likely have some time to exit the trade if it starts to break the other way.
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 company mentioned in this article.