Square Inc Is Going to $50 — Here’s How to Trade It

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Square Inc - Square Inc Is Going to $50 — Here’s How to Trade It

Source: Via Square

Skeptics abound in Square Inc (NYSE:SQ ), but the trends support buying SQ stock using a defensive, but moderately bullish, options strategy.

Square shares bucked like a bull Thursday with Square Inc jumping higher by nearly 6% to finish at $44.29. Behind the strong buy interest, Deutsche Bank hiked its price target on the mobile banking outfit from $37 to $43 while retaining its “buy” rating.

The firm noted solid revenue momentum, high-profile growth and massive market opportunity as reasons behind Thursday’s price revision. The move comes in front of late February’s earnings report from Square. But it’s not entirely bullish. Shares only received a “buy” reiteration and the improved price target is still below the current market price, albeit at the hands of Deutsche.

However, Deutsche is looking a good deal less skeptical than many on Wall Street regarding Square’s prospects. The median 12-month price target sits roughly 7.5% below Thursday’s closing price at $41. And far from a vote of confidence, analysts are evenly split between those seeing SQ stock as a “buy” and those maintaining a “hold” with 17 casting favor and 16 sitting on their thumbs.

As for traders, with short interest approaching 16% of Square’s float, there’s also a decent amount of disbelief. Just don’t count me among those seeing SQ stock as a “sell” or “hold” for that matter. Personally, I see shares as a short-term buy with a price target of $50.

SQ Stock Daily Chart

Square Inc Is Going to $50 -- Here's How to Trade It
Source: Charts by TradingView

Over the past several month’s shares of SQ have gone from a constructive uptrend sporting multiple weekly bases, to run away and unsustainable price momentum, followed by a healthy 31% corrective move commonly found in a growth stock of SQ’s caliber.

More recent and since bottoming in late December Square is on its way to establishing a bonafide uptrend with one key high and one higher low in place.

Looking forward, I’m optimistic the net price action since the November capitulation is the development of a first-stage weekly base which will eventually resolve itself with an upside breakout to new highs.

SQ Stock Modified Spread Strategy

Square Inc Is Going to $50 -- Here's How to Trade It

Reviewing SQ stock’s options for bullish ideas, but appreciative the sky is not the limit in the near-term; the March $47/$50/$55 call (modified) long butterfly looks attractive.

With shares of Square at $44.25 the spread is priced for a debit of 15 cents. Below $47 at expiration the trader faces a minuscule loss equivalent to .34% of SQ stock. In-between $47.15 — $52.85 the position offers bulls some type of profit. The max payout is $2.85 at $50 if Square finished squarely on the shorted middle call strike.

The real concession for this otherwise very good-looking defensive and moderately bullish strategy is the trader needs to be comfortable accepting risk above $52.85. That’s when losses will begin to accrue.

The risk-to-reward profile is due to the embedded short $50/$55 call vertical being larger than the 3-point bull call spread. This means losses could reach as much as $2.15 at or above $55.

Having said that, if you’re bullish like me but also inclined to see more runaway gains in SQ stock as unlikely in the next month, then this is a smart-looking combination to consider.

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.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2018/02/square-inc-is-going-to-50-heres-how-to-trade-it/.

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