Shares of payments company Block (SQ), formerly Square, have been in a major drop over the past few weeks. One trader sees the possibility of a rebound in the next few months.
That’s based on the March $185 calls. With 87 days left on the trade, 10,250 calls traded compared to a prior open interest of 417, for a 25-fold rise in volume. The buyer of the calls paid $10.48 to make the trade.
With shares last trading near $165, they would need to rally more than 12 percent to move in-the-money. That’s certainly achievable in the next few months, as shares look oversold and ready for a relief rally higher.
The recent pullback has left shares down 25 percent over the past year, and 43 percent off its highs, even as revenue has grown 26 percent. While the company hasn’t been profitable in the most recent quarter, the company’s shift towards blockchain payment technologies give it a new, fast-growth niche with the size and power to take better advantage than smaller companies.
Action to take: Shares look attractive at current levels. Investors won’t get a dividend anytime soon, but buying a tech giant after a 25 percent drop tends to work out well given enough time.
For traders, the March $185 calls look like a classic rebound setup. The option wouldn’t be trading as high as it is if traders expected shares to continue dropping. Traders can likely leverage a move higher with high double-digit gains on the trade.
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.