Trade Alert - (SQ) January 28, 2021 - BUY
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) – BUY
BUY - Square, Inc. (SQ) February 2021 $245-$250 in-the-money vertical BEAR put spread at $4.32
Opening Trade
1-28-2021
expiration date: February 19, 2021
Portfolio weighting: 10%
Number of Contracts = 23 contracts
This is a short-term bet that fintech company Square (SQ) will stay BELOW $245 for 22 days which means that even if it goes slightly up from the current price, we will still make a profit.
We currently have a SQ Feb 2021 Bull call spread position open that had gone sharply against us from the day I executed the position so I am using this nice 5-6% rise as a way to hedge my position in case the bottom falls out from SQ again.
The call spread position has experienced high volatility and it is easily the riskiest live position in the tech portfolio, so this put spread will help us reduce our “beta” in the portfolio and should help you sleep at night.
I don’t blame you, your heart must have been pounding seeing red across the screen yesterday even though the US central bank did its bit to soothe fears the punch bowl will be taken away.
Dip buyers have shown up today in full force and it just makes sense to neutralize our riskiest position while we also have a few other call spreads open like the INTU, MU, and ADBE call spreads.
If you really want to reduce volatility further, then consider executing a put spread on the CRWD call spread as that one is the next most volatile.
Why is this a great company?
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 that are 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.
It’s a time to add a little risk and with some big tech names in hot water, it’s time to look in a “safer” area of Silicon Valley for a trade and this time it's in fintech.
If you don’t do options, avoid for now.
Here are the specific trades you need to execute this position:
Buy 23 February 2021 (SQ) $250 put at………...….………$39.48
Sell short 23 February 2021 (SQ) $245 put at……...…….$35.16
Net Cost:………...................……………..…….………..…….....$4.32
Potential Profit: $5 - $4.32 = $.68
(23 X 100 X $.68) = $1,564 or 15.74% in 22 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.