Digital payment company Block (SQ) has been an underperforming stock in the past year, with shares just breaking even after a big earnings beat. One trader sees shares trending lower in the weeks ahead.
That’s based on the May $70 puts. With 73 days until expiration, 26,315 contracts traded compared to a prior open interest of 1,128, for a 23-fold rise in volume on the trade. The buyer of the puts paid $3.30 to make the bearish bet.
Block recently trade near $80 per share, so the stock would need to drop $10, or 13.5 percent, for the option to move in-the-money.
Block hit a 52-week high of $83.29 in late February following earnings, but has been losing steam since.
Operationally, the company has struggled over the past year, but there’s a light at the end of the tunnel. Revenues are up 24 percent over the past year, and Block is starting to report positive earnings.
Shares now trade at 26 times forward earnings, and increased profitability from here could allow shares to continue higher. But markets may be skeptical until then.
Action to take: Investors may want to wait for a pullback in shares before buying, as the stock is trending lower following its post-earnings jump. At present, Block does not pay a dividend.
For traders, the May $70 puts are well positioned for further downside in shares in the coming weeks. Traders may want to take a quick profit on any sizeable down day for shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.