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Options traders’ bets pay off as Square surges on earnings

Shares of payment processor Square surged Wednesday after reporting earnings a day earlier than expected. The company pulled in $1.92 billion in revenue in the second quarter, marking a 64% year-over-year increase, while flipping an expected loss into earnings of 18 cents per share. 

That’s huge news for many options traders, as a surge in activity in Tuesday’s session before the earnings were released was highlighted by some very bullish bets, despite more balanced overall sentiment.

“Square is implying about an 8.8% move by the end of the week after they report earnings. That’s a lot, but maybe not surprising, given that it has averaged about 7.5% over the last eight quarters. The bulls and bears were pretty evenly matched in [Tuesday’s] volume but the bulls just edged it out,” Optimize Advisors CIO Michael Khouw said Tuesday on “Fast Money.”

Even though bets were placed on the bullish and bearish sides of that implied move, the most actively traded contract couldn’t even capture just how much the stock surged on its report.

“The most active were the [Aug. 7] weekly 140-strike calls,” said Khouw, “Just under 5,000 of those traded for about $4.65.”

Those contracts broke even at a stock price of $144.65, which would have been a jump of roughly 6% from where Square closed Tuesday. But after reporting, the stock crushed that number, and is now trading around $151, or about 11% higher.

Those 140-strike calls are now trading for about $12.90, meaning those who bought Tuesday are sitting on a hefty profit.


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