Block Bulls Hit it Big With Earnings UOA

Block Bulls Hit it Big With Earnings UOA

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Four days ago, Block (formerly Square) was trading at a measly $39.25 after a massive drawdown. Heading into earnings, one bull decided to make a bold bet using vertical call spreads — a bet that paid off big time.

SQ Q3 Earnings Satisfy Stock Market

In a move that did everything to make Block shareholders happy, $SQ released one seriously packed earnings report.

First was the news that Block had managed a top and bottom line beat, with EPS that was 25% higher than analysts expected.

  • EPS: $0.55 vs $0.44e
  • REV: $5.62B vs $5.41Be

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Then, $SQ announced a massive $1 billion dollar stock buyback. When a company buys back their shares, it’s a sign that they believe their shares are trading at a value — a sign that they believe in the future of their company, and their stock. Additionally, due to supply and demand, stock buybacks have a direct positive impact on the share price of a company, and they’re a large part of the reason why Apple has stood the stock market test of time. For Block, a company with a market cap of just $29B, this buyback is extremely significant.

But Block wasn’t done. They also provided forward guidance that included higher revenue than expected, higher EBITDA (earnings that are available to pay down debt before deducting interest, taxes, depreciation, and amortization), and more. It’s no wonder $SQ rallied more than 32% to its daily high from the time that this UOA trade was placed.

And as for the UOA trade? That was a vertical call spread. In a vertical call spread, you pay less than you would for a typical long call option, but in exchange, your gains are capped at the strike price of your short call. In this case, the short call was $52.50, and the long call was $47.50. That means after rallying all the way from $39.25, this vertical call spread is firmly in the money, and hasn’t even exceeded the maximum profit potential yet.

That’s why we follow the smart money. Monitoring and tracking unusual options activity is the only way to get inside the minds (and wallets) of the Wall Street Elite. These trades, often placed by institutions and hedge funds, can foretell hidden secrets unbeknownst to the general trading public. For them, it could even be a trade on insider information. But there is nothing illegal about monitoring and trading unusual options activity — and when we see results like this, it’s a good sign that this strategy is working.

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