Shares of payment processing company Block (SQ) are down 75 percent from last year’s peak. One trader is betting on an oversold bounce higher for the stock from here.
That’s based on the November $55 calls. With 44 days until expiration, 7,752 contracts traded compared to a prior open interest of 193, for a 40-fold rise in volume on the trade. The buyer of the calls paid $7.13 to make the bullish bet.
The stock last traded for about $62 so the option is already in-the-money. The stock is near a 52-week low of $53.71, far off its high of $270 in the past year.
While shares are down substantially, Block’s revenue is only down about 6 percent in the past year, as the company looks to expand its payment processing systems into the world of cryptocurrency payments.
Action to take: Shares are likely oversold here, as the company has gone from 201 times earnings last year to 35 times forward earnings today.
Plus, shares have significantly compressed on other metrics like price to sales and price to book value as well. That makes for a contrarian buy here, even if the overall markets may continue to face pressure in the weeks ahead.
For traders, the options are a reasonable bet as they’re already in-the-money. Traders can likely earn mid-to-high double-digit gains as shares bounce off their oversold level in the coming weeks.
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.