Square Inc (NYSE:SQ) may lack profits today, but SQ stock is looking more than a bit bankable for investors riding the forward-looking growth trend with a Square collar spread. Let me explain.
Don’t be square and let a lack of profits stand in the way of a friendly trend. Bottom line, SQ stock’s strong sales increases and solid forecasted growth within one of the more important secular trends in the market today, namely electronic payments, dictate that day will come for the mobile payments upstart.
One such affirmation was last week’s news of Square’s strategic partnership with Eventbrite. The company is establishing an exclusive payment processing relationship with the events ticketing giant for its online, mobile and in-person payments. And with between 2 million and 3 million in ticket sales each week, the opportunity is a solid push into online commerce and at the expense of a much larger player like PayPal Holdings Inc (NASDAQ:PYPL).
Also and where a forward-looking market often does its best work before its front page news, SQ stock is already finding classic and solid investor favor on Wall Street and indicative Square’s moves will continue to payoff for today’s investors.
SQ Stock Daily Chart
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Technically speaking, recent IPO Square has been making all the right moves on the SQ stock price chart too. Shares recently broke out to fresh all-time-highs from a base-on-base cup pattern of around two months in duration.
The breakout is the third noteworthy move out of a weekly basing pattern since affirming an uptrend when SQ stock rallied through resistance to all-time-highs out of a fairly long 10-month cup with handle base in early 2017.
Typically and after a third base, initiating a long position becomes a bit dicier failing a correction and base count reset. Having said that, given two of SQ’s bases were pattern consolidations within 10% of the prior base i.e. base-on-base formations — the price extension and base count in SQ is less worrisome at this juncture.
SQ Stock Collar Strategy
Reviewing the SQ options board for fresh ideas, and keeping in mind an assumption that SQ’s growth story is just beginning, but always demanding of risk protection, the collar strategy is a favored strategy.
One preferred combination is the Nov $33 call/$26 put collar. The stock spread is priced for $29.11 or just 30 cents more than purchasing SQ stock outright. But for the additional 1% premium, the collar guarantees if SQ falters, losses are contained to 10.7% and roughly 7% below the base breakout near $28.
Alternatively and if SQ continues to rally and make bank for bulls, the collar trader will also enjoy profits. Gains could reach in excess of 13% at expiration if shares are at or above $33 and where the short call has been stationed.
Bottom line, the collar’s maximum profit potential is certainly an attractive return for a holding period of less than two months. But, it’s also not the end all, say all either. If the trader is inclined to remain bullish on Square, the collar can always be adjusted as shares move higher in order to continue riding SQ stock’s growth potential to even greater profits.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits and feel free to click here to learn more about how to design better positions using options!
