It’s a glorious day to be alive if you’re a Toronto Blue Jays fan. Last night, my favorite baseball team punched its ticket to the American League Championship Series, beating its archrival, the New York Yankees, three games to one. Toronto hosts either the Mariners or the Tigers on Sunday. I can’t wait.
Enough about me. It’s time to discuss yesterday’s unusual options activity. I can do that.
There were 1,311 unusually active options yesterday (Vol/OI (volume-open interest) ratios of 1.24 or more expiring in seven days or more) and calls outnumbered puts, 881 to 430, more than two to one.
Of the 1,311, Block (XYZ)he had six, including two in the top 100. Among the six, bullish investors will find at least two options strategies to consider when betting on the growing fintech company.
As I said in the intro, Block had six yesterday, with Vol/OI ratios ranging from a high of 32.67 to a low of 1.71. All six were evenly split between put and call options.
Of the six, the Nov. 21 $75 put and Nov. 21 $65 put had the highest volumes, at 14,880 and 14,927, respectively. These two puts are part of two possible scenarios for using a covered strangle or covered mix options strategy.
The three October 17 calls (with strike prices of $83, $84, and $86) had volumes of 3,835, 2,093, and 3,626, respectively. These three call options form the basis of a long ratio Call Spread.
Before getting into each strategy, I’ll review what’s happening with Block and XYZ stock.
Between May 2022 and October 2025, Block’s share price traded between $50 and $100. It reached its 52-week high of $99.26 on December 5, 2024. It is down 19% since then.
As for the company, it’s been a while since I’ve taken a closer look at how the business is doing. The lack of price movement gives clues to what I’m going to find.
But first, let’s consider Wall Street’s view. Of the 41 analysts covering its stock, 27 have a Buy rating (3.98 out of 5), with a price target of $84.58, about 5% higher than its current share price. That’s lukewarm support…at best.
Block reported second-quarter 2025 results in early August. While the results were weaker than expected, the forecasts left investors optimistic. Its shares rose on the news. They have continued to rise in the two months since then, albeit with a modest movement.
Its 2025 guidance calls for gross profit of $10.17 billion and adjusted operating profit of $2.03 billion, a margin of 20%. That’s considerably higher than in 2024, when its gross profit was $8.89 billion, its operating profit was $892 million and its margin was 10%.
That sounds good to me.
On Square’s side of the business, Block continues to focus its attention on restaurants and hospitality. On October 8, at the company’s biannual Square Releases event, it announced several new products, including voice ordering, that will make it easier for restaurant owners to succeed.
In its Q2 2025 shareholder letter, Block stated that it was focused on winning the quick-service restaurant (QSR) market. Yesterday’s event highlighted this approach.
On the Cash App side of the business, it continues to work toward its long-term goal of merging Cash App and Square into a single, integrated financial ecosystem.
“There’s going to be a big reason to use Cash App and not have to go to the App Store to buy 10 different apps,” CNBC reported on CEO Jack Dorsey’s comments on the Q2 2025 conference call. “It’s all in one app, and that’s going to be Cash App.”
With Cash App’s gross profits up 16% year-over-year, up 500 basis points sequentially from the first quarter of 2025, the moves it continues to make to one day merge its offerings to personal and business customers are paying dividends, even if that hasn’t been reflected in its stock price.
This should change in 2026.
As I said in the introduction, the November 21 $75 put and the November 21 $65 put form one part of two covered strangleholds.
For those unfamiliar, a covered strangle involves holding 100 shares of a company, while selling an OTM (out-of-the-money) put and call option, both with the same expiration date. The covered strangle is also known as a covered put because it combines a covered call (selling a call for income while holding the stock long) with a cash-secured put (selling the put for income).
So in this example, based on the current price of $8,050, 100 shares of XYZ would cost you $8,050. Selling a $75 put option on November 21 generates $355 in premium income for an annualized return of 42.5% ((bid price of $3.55 / strike price of $75 – bid price of $3.55) * 365 / 43), while the $65 put option generates $117 in premium income for an annualized return of 15.3% ((bid price of $1.17 / price exercise of $65 – offer price of $1.17) * 365/43).
To complete the covered strangle, you would sell a call to earn premium income. For the sake of illustration, I will select the farthest OTM from the November 21st call. It would be $115.
For the purposes of this exercise, I based all calculations on $80.50 (today’s price) instead of yesterday’s closing price of $81.11, while using the bid prices for the puts from yesterday’s close.
As you can see from the above data from today’s trading, the $115 call is almost 43% out of the money. The premium income generated is $46 for an annualized return of 4.9% ($0.46 offer price / ($80.50 share price – $0.46 offer price) * 365 / 43). The maximum potential return on the covered call would be 43.7% (($115 strike price + $0.46 bid price – $80.50 stock price) / $80.50 stock price – $0.46 bid price).
The second part of the covered choke is the cash guaranteed put. Remember that you will also set aside the cash needed to purchase 100 shares in case the put buyer allocates them to you.
The total profits for the two scenarios.
1) The stock price is $115 at expiration and you must sell your 100 shares of Block. Your premium income based on the $115 call and the $75 put is $401. Your capital gain is $3,450 ($115 strike – $80.50 stock price). Its return is 47.8% ($3,851 total earnings / $8,050 cost of shares). Its annualized return is 405.7%.
2) The share price is $115 at expiration and you must sell your 100 shares of Block. Your premium income based on the $115 call and the $65 put is $163. Your capital gain is $3,450 ($115 strike – $80.50 stock price). Its return is 44.9% ($3,613 total earnings / $8,050 cost of shares). Its annualized profitability is 381.7%.
Note: The actual return, taking into account the opportunity cost of holding $6,500 to $7,500 in short-term cash or T-bills, rather than investing them, would alter the result slightly, in either direction.
The long ratio call spread strategy involves combining one short call and two long calls with the same expiration but a higher strike. It effectively combines a Bear Call Spread and a long call. You are betting on a big move in XYZ stock.
Based on the three calls from October 17 (with strike prices of $83, $84, and $86), you have three scenarios. I’m left with the strike prices of $84 and $86.
The maximum profit is unlimited depending on how high Block’s share price can appreciate over the next 43 days. The maximum loss is calculated as the high strike price – the low strike price + the net debit paid or – the net credit received.
Using yesterday’s close bid and ask prices, the maximum loss is $240 ($86 strike – $84 strike + net debit of $0.40 ($1.30 bid price times $84 strike – 2 * $0.85 ask price)).
On the date of publication, Will Ashworth had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
