Scorching-Hot Square Inc (SQ) Stock Is a Big-League Buy

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Square Inc (NYSE:SQ) shares are on the move. Resistance is melting, and bears are running scared. And why shouldn’t they be? SQ stock is a stone’s throw from all-time highs and boasts one of the best looking, most consistent trending charts on the Street.

This Square Inc (SQ) Stock Breakout Is a Big-League Buy
Source: Via Square

She’s eye candy, as the cool kids say.

Since notching a record high in mid-June at $24.97, Square has been in digestion mode. And for a good reason. It just ingested a heap of gains and needed some time for settling before going in for seconds. But if today’s pop is any indication, SQ is ready for more.

Like all good trending stocks, SQ sits atop a rising 50-day and 200-day moving average. The shorter-term 20-day moving average is traveling sideways due to the stock’s recent pause.

SQ stock chart
Click to Enlarge
Source: SQ stock

The silver lining for sideways consolidation is it sets up a clean breakout trade. The top of the range provides a clear price level to use as a trigger for the stock’s next ascent. For Square, $24.50 has been that ceiling. And it’s currently attacking it as I type.

The SQ Stock Trade

With an implied volatility rank of 80%, stock options on Square are juiced. That coupled with its relatively cheap price tag ($24.50) makes naked puts a compelling play.

Sell the Aug $22 puts for 70 cents. The max reward is limited to the initial 70 cent premium received. You will realize the entire gain if the stock sits above $22 at expiration. Be aware there is an earnings announcement slated for August 3rd.

By selling the put, you obligate yourself to buy 100 shares of stock per contract sold at $22. If you’d prefer to sidestep assignment, then buyback the put if it moves in-the-money.

The initial margin requirement (aka the cost) should be around $225 which makes the $70 potential profit (70 cents x 100) an impressive 31% return.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out the replay of Tyler’s recent webinar on how to systematically sell Iron Condors for monthly income.

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Article printed from InvestorPlace Media, https://investorplace.com/2017/07/scorching-hot-square-inc-sq-stock-is-a-big-league-buy/.

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