Nike (NKE) has underperformed the market and its sector since mid-2021. However, analyst growth expectations have bottomed out recently. With valuations nearing record lows and a possible recovery in Chinese growth, it’s time for investors to start paying attention to Nike again. Starting with Nike’s 4-year long-term chart, we can see that it has formed a triple bottom at the $90 support level over the past two years and has recently turned upside from this support. Also, if we zoom in on the daily chart, we can see that it has formed another triple bottom at $90 over the past two months and is starting to test the upper end of its trading range at $95. With a gap at $100, the near-term upside target is to close that gap and meet the $105 resistance level above it. NKE is currently trading at the low 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 of the past few years. With growth expectations starting to recover on the back of China’s growth and the Olympics this year, NKE is looking to see a recovery in declining sales in the second half of the year. Options trading for NKE is currently expensive with implied volatility at the high end of the range. In such an environment of high implied volatility, I prefer to be a seller of options. So, I sell a $95/$90 put vertical for a credit of $1.99 heading into the July expiration. This would look like this: I sold the July $95 put for $4.08 and bought the July $90 put for $2.09. My total risk on this trade is $301 per contract if NKE falls below $90 at expiration, and my maximum profit potential is $199 per contract if NKE rises above $95 at expiration. This trade structure allows me to make the maximum profit even if NKE rises by more than $0.26 by the expiration date. Disclosure: (Long Nike) The above content is subject to our Terms of Use and Privacy Policy. This content is for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any securities or other financial assets. The content is general in nature and does not reflect any individual’s unique circumstances. The content above may not be suitable for your particular situation. You should strongly consider seeking advice from your own financial or investment advisor before making any financial decisions. Click here for the full disclaimer.
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Nike signs of recovery: How to play with options
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