Large Square Option Trader Makes $1.9M Bet On Earnings Beat

Square Inc SQ shares are down 21.2% in the past three months, but at least one larger option trader is betting a Square rally will resume within the next month.

The Trade

On Thursday morning, Benzinga Pro subscribers received an option alert related to an unusually large Square trade.

At 10:03 a.m., a trader bought 3,146 Square call options with a $60 strike price expiring on Nov. 15 near the ask price at $6.02. The trade represented a $1.89 million bullish bet.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of Thursday’s Square option trade it could easily be institutional hedging.

Square Earnings Setup

With Square earnings due out on Nov. 6, the strike price of the calls purchased on Thursday suggests more than 4% upside given their breakeven price is $66.02.

Several Wall Street analysts have commented on the volatile stock heading into earnings season. Susquehanna upgraded Square earlier this month and set a $77 target for the stock. The firm is bullish on the company’s recent investments in its ecosystem, including its Cash App.

Not all analysts are as optimistic about the investments. Nomura Instinet has a $49 price target for Square and said this month investors can expect those heavy investments to eat into the company’s margins in the near-term.

Benzinga’s Take

As with many other growth stocks, upside for Square will continue to hinge on whether or not the company can grow its business at a high enough clip to justify its valuation. Last quarter’s 44% revenue growth would have been a blowout quarter for almost any other company. But with Square stock up 470% overall in the past three years, market expectations are extremely high.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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