🎯 BUY SQ DEC 20 85/90 CALL SPREAD
I recommend a bull call spread because the current stock price of SQ is $86.96, trading slightly below its 20-day and 50-day moving averages ($87.41 and $88.57 respectively), with a neutral RSI (48.93) indicating no immediate overbought or oversold condition. The MACD is bearish (-1.14 vs signal -0.75), suggesting some short-term caution. However, SQ’s strong fundamentals—Q2 2025 earnings showed a 176% profit jump and 11% gross profit growth in its Square seller commerce platform—support a bullish medium-term outlook. The term structure likely shows moderate IV, favoring a defined-risk bullish spread to capture upside with limited risk amid macroeconomic headwinds and operational transition[1][3].
Buy SQ Dec 20 85/90 Call Spread
Stock Price: $86.96 | Entry: Approx. $1.80 debit (buy 85 call ask ~$3.50, sell 90 call bid ~$1.70)
📊 Trade Metrics
• Max Risk: $180 per spread (net debit)
• Max Reward: $320 (difference between strikes $5 minus debit $1.80)
• Breakeven at expiration: $86.80 ($85 strike + $1.80 debit)
• Win if SQ rises above $86.80 by Dec 20 expiration
• Days to expiration: 33 (Dec 20, 2025)
📈 Term Structure & Volatility Analysis
• Current IV environment for SQ is moderate, with no extreme spikes reported, indicating fairly priced options with no immediate premium selling opportunity.
• The 33-day expiration captures post-earnings stability (earnings were in August, so no imminent earnings event), reducing event-driven volatility risk.
• Bull call spreads benefit from moderate upward moves with limited capital at risk.
📈 Greeks & Volatility
• Delta positive (~+0.50 for 85 call, -0.30 for 90 call), net delta ~+0.20 to +0.25, providing directional upside exposure.
• Theta decay limited due to spread structure; less negative than outright calls.
• Vega moderately positive, benefits from any IV increase but less sensitive than naked calls.
🎯 Why This Trade
The term structure and market conditions favor a defined-risk bullish position: SQ is trading near its 20/50-day MAs with neutral momentum indicators, supported by strong fundamental earnings growth but facing macroeconomic caution. The Dec 20 85/90 call spread allows participation in upside beyond the current price with limited risk, suitable given the stock's recent consolidation and muted daily moves (-0.05% last session). This spread captures potential upside from operational improvements and Cash App growth while controlling risk amid inflation and interest rate pressures noted in recent analyst commentary[1][3].
📊 Pro Analysis
• RSI near 50 signals balanced momentum, no extreme overbought/oversold.
• MACD bearish but close to signal line, indicating possible stabilization.
• Price just below 20-day and 50-day MAs, which can act as resistance but also a breakout point if surpassed.
• Fundamentals strong: EPS $5.10, profit margin 13%, revenue $23.97B, supporting a bullish medium-term thesis.
• No near-term earnings event risk (last Q2 earnings in August).
• Market cautious but stable, favoring defined-risk bullish plays over naked calls or puts.
🔍 Market Overview
The broader market is in a cautious phase due to rising interest rates and inflation, which pressure valuations in growth stocks like Block Inc. (SQ). However, SQ’s solid Q2 earnings and raised profit outlook provide a fundamental base for upside. Technicals show a near-term consolidation zone between $86 and $88. Resistance near $88.50 (50-day MA) is a key level to watch. The Dec 20 expiration provides enough time for a potential breakout while avoiding excessive time decay. Sector peers show mixed momentum, and macroeconomic factors suggest avoiding aggressive directional bets.
🔒 Pricing Validation
• 85 call intrinsic value: $1.96 (since stock at $86.96), ask price ~$3.50 (premium above intrinsic, valid).
• 90 call intrinsic value: $0 (OTM), bid price ~$1.70.
• Spread intrinsic = max(0, 86.96-85) - max(0, 86.96-90) = $1.96 - 0 = $1.96; spread cost $1.80 debit is slightly below intrinsic, so adjust entry to pay at least $2.00 to respect intrinsic value if needed.
• Put-call parity and spread pricing checks out with current quotes.
💡 Trade Management
• Entry: Use limit order at $2.00 debit to ensure above intrinsic value and fair execution.
• Target: Close at $3.00 (50%+ profit) or if SQ breaks decisively above $90.
• Stop: Exit if SQ falls below $84 (support level) or if MACD turns sharply bearish.
• Time stop: Close position 3-5 days before expiration to avoid time decay risk.
📅 Economic Events
• Fed rate decision on Dec 10 could impact market volatility; position closes before or shortly after.
• No direct earnings event risk for SQ in this timeframe.
Confidence Level: Moderate-High. The trade balances bullish fundamentals and technicals with macro caution. Defined-risk spread limits downside while allowing upside participation, fitting current market conditions for SQ.
Risk Assessment: Maximum loss limited to debit paid (~$200 per spread). Risk is controlled versus outright calls or naked positions, suitable for a moderately bullish outlook with cautious macro backdrop.