Options Traders Load Square Calls After Chart Breaks Bullish

Square Inc’s SQ stock lost over 32% of its value between Feb. 16 and March 5 following a consolidation period on the Nasdaq 100.

Since hitting a temporary bottom of $191.68, Square’s stock also eased into a consolidation pattern and on Tuesday broke bullish.

On Wednesday morning, option traders saw signs of bullish follow-through on the chart and bought a large amount of call sweeps.

Barclays also maintained and Overweight rating on Square Wednesday and raised its price target from $320 to $330. 

The Square Chart Signals: Although Square’s stock has been trading in a bearish descending triangle since reaching an all-time high of $283.12, a bullish inverted head-and-shoulder pattern within the descending triangle overrode the bearish pattern.

On Tuesday, Square’s stock broke up through the descending line that had been holding it down, and on Wednesday morning a significant amount of bullish volume came into the stock, which gave traders the indication that a larger move to the upside was imminent.

The Square Trades: At 10:01 a.m., a trader executed a call sweep of 2,048 Square options with a $250 strike price expiring on April 9. The trade represented a $622,592 bullish bet for which the trader paid $3.04 per option contract.

At 10:04 a.m., a trader executed a call sweep of 541 Square options with a $220 strike price expiring on April 16. The trade represented a $1.44-million bullish bet for which the trader paid $26.60 per option contract.

At 10:33 a.m., a trader executed a call sweep of 638 Square options with a $260 strike price expiring on May 21. The trade represented a $880,440 bullish bet for which the trader paid $13.80 per option contract.

Together, traders are betting over $2.94 million the share price of Square is going higher.

Why It’s Important: When a sweep order occurs, it indicates the trader wanted to get into a position quickly and is anticipating an imminent large move in stock price.

A sweeper pays market price for the call option instead of placing a bid, which sweeps the order book of multiple exchanges to fill the order immediately.

These types of call option orders are usually made by institutions, and retail investors can find watching for sweepers useful because it indicates “smart money” has entered into a position.

SQ Price Action: Shares of Square ended Wednesday's session 3.43% higher at $245.12. 

Photo courtesy of Square.