At a cursory glance and without the benefit of broader context, financial technology (fintech) giant Block (XYZ) initially appears to be a compelling investment opportunity. Soaring to fame with its point-of-sale (POS) systems, Block has become a mainstay of modern commerce. Per its public profile, the company serves 57 million users and 4 million sellers, processing $241 billion in payments annually.
At the same time, Block’s viability depends largely on underlying consumer sentiment. Unfortunately, this matter represents a massive headwind for XYZ stock at this hour. Recently, high-level data showed that personal spending in February rose less than expected, a negative factor for the dollar. Put another way, consumers are feeling the pain brought on by prolonged periods of inflation, leading to a more cautious mindset.
Almost certainly, the Trump administration’s tariffs and subsequent trade wars against key economic partners will do little to ameliorate households’ anxieties. As such, investors have taken a dim view on XYZ stock. Most conspicuously, since the beginning of this year, the equity crumbled nearly 35%. And over the past one-year period, Block shareholders have incurred a 32% loss.
Perhaps the most damning statistic is this one: over the past five years, XYZ stock gained less than 4%. Since the post-pandemic boom-bust cycle, Block has failed to reward investors. Under this context, it’s not terribly surprising that XYZ recently printed the dreaded death cross.
A technical formation that describes a shorter-running moving average slipping beneath a longer-running one — usually the 50-day moving average intersecting below the 200 DMA — a death cross is often considered a warning. It may mark the beginning of a serious downturn or in the worst-case scenario a bear market.
Nevertheless, each death cross needs to be viewed in its proper context.
Unusual Options Activity Clouds XYZ Stock
Adding to the downbeat sentiment on XYZ stock, the equity represented one of the highlights of Barchart’s unusual stock options volume screener but for the wrong reasons: XYZ was notable for generating less attention than usual.
On Friday, XYZ stock slipped almost 3% in the open market and sentiment was relatively muted in the derivatives arena. Total options volume reached 65,417 contracts against an open interest reading of 622,132 contracts, or a 5.09% dip relative to the trailing one-month average volume. That said, call volume stood above put volume at a ratio of 0.50.
Nevertheless, the nuance was that options flow — which focuses exclusively on big block transactions likely placed by institutional investors — was decisively pessimistic. Net trade sentiment on the day fell to $4.785 million below parity, thus strongly favoring the bears.
Stated differently, the relatively high number of calls represented written or sold options, which have neutral to negative implications.
While circumstances don’t seem auspicious given the flashing of the death cross, it should be noted that for XYZ stock, such a development may be a buying opportunity, at least for swing traders. Between January 2019 through July 2024, there have been eight death crosses. One month later, XYZ has popped higher five times, resulting in a contrarian success ratio of 62.5%.
Notably, if you do want to play the death cross, the average one-month return (assuming the positive scenario only) clocks in at 15.32%. Therefore, if you’re really aggressive, you may consider options strategies that target a price level of roughly $64.
Plotting a Multi-Leg Options Strategy
For the adventurous, a bull call spread for the options chain expiring May 2 could be enticing. Specifically, one may research the 57/60 spread. This transaction involves buying the $57 call and simultaneously selling the $60 call. The proceeds from the short call partially offset the debit paid for the long call, resulting in a net cash outlay of $141.
Should XYZ stock hit the short strike target at expiration, the maximum reward is $159, translating to a payout of almost 113%. That’s the power of multi-leg options strategies. Otherwise, if you were to simply buy the security outright, a move from Friday’s close to the short strike is only 8.44%.
The downside is the risk involved. In the above call spread’s case, both calls are out the money (OTM). If XYZ stock never moves higher, the spread is not salvageable at all and will expire completely worthless. That’s $141 down the drain — and much more if you bought more than one spread.
Still, if you’re looking to play the death cross as a high-risk wager, the bull spread may be the way to go.
