Opportunity Is Knocking in Square Inc (SQ) Stock

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Coming into its earnings, Square Inc (NYSE:SQ) stock was up 160% in 12 months. Yet, bulls were still expecting more. The company beat on all counts and raised guidance, but the initial pop in after-hours trading didn’t hold and SQ stock opened lower.

Naysayers might nit pick this fade as a tell of more red to come. But given that expectations were so high, dips are normal in an longer-term uptrend as long as the equity macro remains intact.

Fundamentally, we know that banks are healthy. We also know that consumer spending is booming on a global level. Considering that we also have a shift to online  transactions SQ should prosper and its stock should have an upward bias.

Bias alone alone is not enough for me to buy and hold, especially not when markets are at all-time highs. So I resort to the options markets to continue to profit from momentum stocks like SQ. There, I can set risk based on homework and leave room for error.


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In a rising market, Square should continue to outperform others like PayPal Holdings Inc (NASDAQ:PYPL), Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA).

Even so, I am not one to buy SQ stock at face value then hope for a rally. Instead, I will sell more puts for income.

As long as I choose solid support levels, I can create profits out of thin air. The problem is that it is a momentum stock, so it moves too fast and therefor leaves very few obvious entry points.

The Trade: Sell the SQ stock Jan 2018 $19 put and collect $1 to open. Here I have a 75% theoretical odds of retaining maximum gains if price stays above my strike. Otherwise I accrue losses below $18.

For those who don’t want to sell naked puts I can use spreads instead. There the risk is limited to the width of the spread and what I collect to open it.

The Alternate Trade: Sell SQ stock Jan 2018 $19/$17 credit put spread, which has about the same chances of success and can potentially yield 20%.

In either trades I only need SQ to stay above my strike to profit. Compare this with risking the full face value of SQ stock here and without any room for error.

This is not an experimental setup. I’ve done it before as evidence by this this win from February. The big caveat here is that I am willing to own the shares if price falls below my risk.

Investing is risky, so I never expose my portfolio to trades that can break my piggy bank.

Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/08/opportunity-is-knocking-in-square-inc-sq-stock/.

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