Square (SQ) Q3 Earnings Preview / Trade Ideas

by Dan November 7, 2018 12:45 pm • Trade Ideas

Square (SQ) will report their Q3 results tonight after the close. The options market is implying about an 8.5% move in either direction which is a little rich to the average 7.5% one-day post-earnings move over the last eleven quarters since going public in late 2015. With the stock near $82, the Nov 9th weekly 82 straddle (the call premium + the put premium) is offered at about $6.80, if you bought that, and thus the implied move you would need a rally above $88.80, or a decline below $75.20 by Friday’s close to make money.

Shares of SQ have been a tad volatile this year, despite being up 137% in 2018, the stock is down 20% from its all-time highs made in early October. Last month the stock appeared to find some technical support in the mid $60s, with resistance very likely to be at the prior all-time high near $100:

 

 

In late September when SQ was approaching $100 I detailed a collar strategy for long holders (Square (SQ) on a Tear) to protect gains.

On Oct 11th after the stock’s 30% decline I updated this view, rolling down hedges for longs (Square Stock Into A Round Hole).

With the stock near $82, up 27% in the last week, I suspect there is a good bit of news in the stock. If I thought no matter what the company reported that the stock would at the very least consolidate recent gains, at the very worst, miss and guide down, then I might consider put spreads, for instance…

Bearish Trade Idea: SQ ($81.85) Buy Nov 80 / 70 put spread for $2.25

-Buy to open 1 Nov 80 put for $3

-Sell to open 1 Nov 75 put at 70 cents

Break-even on Nov expiration:

Profits of up to 7.75 between 77.75 and 70 with max gain of 7.75 at 70 or below

Losses of up to 2.25 between 77.75 and 80 with max loss of 2.25 at 80 or above

 

But If I thought the company could put up a beat and raise and the stock would be on its way back to the prior highs near $100 I might consider the following trade idea:

Bullish Trade Idea: SQ ($81.85) Dec 85 / 105 call spread for $4

-Buy to open 1 Dec 85 call for 4.85

-Sell to open 1 Dec 105 call at 85 cents

Break-even on Dec expiration:

Profits of up to 16 between 89 and 105 with max gain of 16 at 105 or higher

Losses of up to 4 between 85 and 89 with max loss of 4 below 85

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