Signs are pointing to a Nike rebound. How to play it using options

Published Wed, Jun 5 202410:23 AM EDT

Nike (NKE) is underperforming the market and its sector since mid 2021. However, we have recently seen growth expectations from analysts bottoming. With valuations near its historical lows and the potential for China growth to rebound, it is time for investors to start paying attention to Nike again. If we start with a longer term four-year chart of Nike, we see that it has formed a triple bottom at the $90 support level over the past 2 years and recently it just bounced higher off this support. And if we zoom into a daily chart, we see another triple bottom at $90 formed over the past two months that has started to test the top-end of its trading range at $95. With a gap above at $100, our short-term upside target would be to fill that gap and $105 resistance level above that. NKE currently trades at the lower end of its historical valuation at 24 times forward earnings, which is a 20% discount to its historical average and well below the 30-40 times it traded for the previous few years. With growth expectations starting to recover on the back of China growth and Olympics this year, NKE is looking at a second half recovery of sales declines. The trade Options on NKE are expensive now with implied volatility on the higher end of the range. In this type of higher implied volatility environment, my preference is to be a seller of options. So I'm going out to the July expiration and selling the $95/$90 put vertical at a $1.99 Credit. This entails: Sold July $95 Puts @ $4.08 Bought July $90 Puts @ $2.09 My total risk on this trade is $301 per contract if NKE is below $90 at expiration and my maximum profit potential is $199 per contract if NKE is above $95 at expiration. This trade structure allows me to collect the maximum profits if NKE were to rise by just $0.26 or more by the expiration date. DISCLOSURES: (Long Nike) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.