Trade Alert - (SQ) February 4, 2021 - SELL-TAKE PROFITS
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Tech Alert - Square, Inc. (SQ) – SELL – TAKE PROFITS
SELL – TAKE PROFITS Square, Inc. (SQ) February 2021 $190-$195 in-the-money vertical BULL call spread at $4.95
Closing Trade – NOT FOR NEW SUBSCRIBERS
2-4-2021
expiration date: February 19, 2021
Portfolio weighting: 10%
Number of Contracts = 24 contracts
This was a short-term bet that fintech company Square (SQ) would stay above $195 by the Feb 19th expiration.
This in-the-money bull call spread went against us at first but then after news leaked that Robinhood users were quitting that platform and migrating to Square, the stock has done nothing but rise.
Keep in mind that we have an in-the-money put spread right now and I would exit that position the next down move we get and I would even be inclined to execute another call spread on SQ.
The rest of the portfolio is doing well and we are well on our way to a positive month.
Square has certainly seen its stock price spike this year due to the pandemic.
Particularly its Cash App, which allows people to send and receive money without physical contact, has become more necessary during these times of social distancing and working from home.
In September 2020, data showed a rise in the number of its seller or merchant clients going almost entirely cashless. In February, before the pandemic, 5.4% of its sellers were mostly (95% or higher) cashless.
As mentioned, the Cash App has been a cash cow, generating $2.1 billion in revenue in the third quarter, which accounts for about 70% of overall revenue. Revenue for the Cash App was up a whopping 574% year over year in the third quarter of 2021.
However, revenue was down in 2020 due to the pandemic as merchants were hurt by shutdowns and social distancing. But as health solutions roll out in 2021 (even if ridiculously slow), Square's seller ecosystem should see a revenue reversal and $210 represents strong technical support for the stock.
Here are the specific trades you need to exit this position:
Sell to Close 24 February 20201 (SQ) $190 calls at………….………$47.55
Buy to Close 24 February 2021 (SQ) $195 calls at…...........……….$42.60
Net Proceeds:…………..........................…………..…….………..…….....$4.95
Profit: $4.95 - $4.15 = $.80
(24 X 100 X $.80) = $1,920 or 19.28% in 31 days
To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video by clicking here.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
