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 – STOP LOSS
SELL – STOP LOSS - Square, Inc. (SQ) February 2021 $245-$250 in-the-money vertical BEAR put spread at $2.98
Closing Trade
2-8-2021
expiration date: February 19, 2021
Portfolio weighting: 10%
Number of Contracts = 23 contracts
This was a short-term bet that fintech company Square (SQ) will stay BELOW $245 for 22 days and I didn’t expect the pace of this surge up.
Dumped SQ at the market open as the stock is on a tear.
We already took profits on our SQ Feb 2021 Bull call spread position that had an upper strike price of $195. Since SQ touched $200, it has been a pulsating rise up to $250 with no exit points and at this point, we just need to cut our losses.
Just be aware that in that time span, I was able to add a bevy of bullish positions in companies like Apple (AAPL), Netflix (NFLX), Qualcomm (QCOM), and Amazon (AMZN) as the rally goes from hot to scolding magnum.
I am a big fan of Square’s CEO Jack Dorsey and what he is doing and the sky-high valuations validated his vision.
Why is this a great company?
Particularly its Cash App, which allows people to send and receive money without physical contact have 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 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 its in fintech.
Here are the specific trades you need to execute this position:
Sell to Close 23 February 20201 (SQ) $250 put at………….………$11.45
Buy to Close 23 February 2021 (SQ) $245 put at…............……….$8.47
Net Proceeds:……………………..…….….......................……..…….....$2.98
Loss: $4.32 - $2.98 = -$1.34
(23 X 100 X -$1.34) = $3,082 or 3.10%
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.