Options Activity Alert: Bullish Activity Detected in Square

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Square (SQ) has gone nowhere for months, but options traders seem to be keeping the faith.

Unusual call volume was detected yesterday in the fintech company run by Jack Dorsey, with two distinct transactions occurring.

First, investors amassed more than 15,000 28-May 210 calls for $2.15 to $5.09. Overall turnover was about 8 times open interest, suggesting that new positions were initiated.

Calls fix the price where traders can buy a stock. They tend to appreciate when shares rise, with the potential for significant leverage based on their cost. Options also face the risk of expiring worthless if certain levels aren’t reached by a specific time.

In this case, they were looking for a rally significantly above $210 by the end of this week. SQ ended the session up 5.47 percent to $210.95.

Bullish Call Roll

A second transaction was also detected:

  • Some 11,000 June 200 calls were sold for $13.23.
  • Some 11,000 September 200 calls were bought for $25.13.

Volume was below open interest in the June contracts, which suggests an existing bullish position was closed and rolled to September. SQ was trading at $206.37 when the traction occurred, so the June contracts had $6.86 of time value.

With expiration more than a month away, those contracts would be at risk of losing value because of time decay. Moving the position three months into the future reduces that risk. It also cost a net $11.90 to make the adjustment. The investor’s willingness to pay the extra premium implies he or she expects the shares to appreciate over the summer.

SQ also triggered an alert on TradeStation last week after testing its 200-day moving average for the first time in a year. The company also reported strong quarterly results on May 7.

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