On CNBC's "Options Action," Tony Zhang suggested investors should take a closer look in Square Inc (NYSE:SQ) ahead of the earnings report on Thursday. He said expectations are too high going into earnings so he would use options to set up a bearish trade in the name.
The stock has been trading in a range between $200 and $270 and it has recently bounced off the top end of the range, said Zhang. He expects the stock to head back to $200 as it has already started to underperform the technology sector.
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The options market is implying a 7% move in either direction, while the stock's average move on earnings over the last 8 quarters has been 8%. Zhang is concerned the options market might be underpricing a potential downside in the Square, so he wants to buy the September $240/$210 put spread to make a bearish bet.
The trade would cost him $8.60 and it breaks even at $231.40 or 6.85% below the closing price on Friday. If the stock drops to $210 or lower at the September expiration, the trade is going to reach its maximal profit of $21.40.
Photo by: Courtesy of Square Inc.
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New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.