“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, January 06, 2020

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy


"Trading Capital Management"

Option Trade – Square Inc (NYSE:SQ) Calls

Wednesday, January 08, 2020

** OPTION TRADE: Buy the SQ JUN 19 2020 70.000 CALLS at approximately $4.60.

Place a high pre-determined sell at $9.20.

Include a protective stop loss of $1.85.

Shares of payment processing and point-of-sale upstart Square Inc. (NYSE:SQ) look to be lining up for another push higher. And analysts are boosting their ratings on the stock.

Square has a “favorable setup,” as sentiment on the company is mixed at the moment and it can beat expectations, BofA’s Jason Kupferberg wrote in a note raising his rating to buy from neutral.

“Following significant underperformance in 2019, we see an attractive entry point,” Kupferberg said. He flagged “quarterly execution” and the company’s March 18 analyst day, it’s first since 2017, as potential catalysts, adding that Square’s 2020 revenue guidance “looks conservative.”

He said there is "ample upside" to near-term earnings estimates now that initial 2020 guidance has been provided. The company said on post-earnings conference call with analysts in November that revenue growth is expected to be in the "low-30% range" in 2020. He said he believes revenue is the most important metric for the stock, and the 2020 guidance "looks conservative." He said Square is scheduled to host on March 18 its first analyst day since June 2017. "We believe this event could be a positive catalyst, as SQ will update longer-term financial targets," Kupferberg wrote in a note to clients.

Separately, MoffettNathanson’s Lisa Ellis wrote that – at the same time, she expects payments industry-wide volume growth of 11% in 2020 as her economic outlook for the year remains “healthy.” Payment sector operating metrics, from credit card volume growth, to enterprise IT budget growth, to U.S. employment growth, are all strong, she said.

“In a sector with many strong companies and stocks, we maintain a high bar for a buy rating: An expectation of 20%-plus stock upside over the following year, with specific catalysts,” she said. Four stocks currently clear that bar: Square, PayPal, Mastercard Inc., and Visa Inc., in that order of preference, she said.

Guidance Update…..

Square is expected to update long-term financial targets at the March 18 analyst day.

With roots in serving such micromerchants as food trucks and farm-stand vendors, Square has moved "upmarket," targeting larger businesses.

Square aims to build a two-sided payments ecosystem, with products designed for both merchant sellers and consumer buyers. For merchants, Square makes credit-card readers that plug into mobile devices. Its Square Capital division provides loans to sellers.

Why Square.....

Square is inextricably intertwined with American small business. It has become the "operating system of business" for millions of small business owners. It provides a bevy of services including inventory and employee management, payroll tracking, and seamless customer interaction with a premium Apple-esque simplicity.

Square's revenues show no sign of slowing, though some seem to think 40% yoy growth at 6x sales is slowing.

Technically speaking, Square has found a floor, where accumulation will take place before the stock eclipses its 50-day moving average, 200-day moving average, and begins its next leg of bullish momentum.

Moving Forward.....

Squares original tool was the little square attachment that plugged into smartphones, which allowed merchants to receive payments from anywhere. This evolved into an entire POS system that served brick and mortar small businesses.

So, Square began catering to brick and mortar small businesses, and today, that remains their bread and butter. They have, however, entered into the online space more aggressively with their recent acquisition of Weebly. While this hardly scratches the surface of competing with Shopify, it does promote omni-channel execution by Square's primarily brick and mortar customers and ensures these small business owners can stay in Square's ecosystem without having to use the software of a competitor. Brick and mortar will continue to be a fantastic business for Square, as there are innumerable businesses that operate entirely offline, i.e., barbershops, ice cream parlors, and miniature golf courses to name a few.


Square has been a great company for the longs, the optimists, and the small business owners. Not only has the company produced outsized gains for their investors over the last 3-5 years, they have also facilitated the growth of millions of small business owners' operations.