Trade Update $NKE: Selling Call Spread for Quick Profit Near Resistance

by Enis February 12, 2014 3:07 pm • Commentary

NKE has rallied strongly with the broader market since we put on the Mar 72.5/77.5 call spread last week.  The stock is now approaching the critical $75 resistance level (traded $74.81 this morning):

NKE daily, 50 day ma in pink, 200 day ma in yellow
NKE daily, 50 day ma in pink, 200 day ma in yellow

The $75 level coincides with its gap high in late Sept, which then served as support on several occasions in the proceeding months, as well as the declining 50 day moving average.

Moreover, the initial enthusiasm from the Olympics is wearing off, and NKE is exposed internationally in the same way as PG, which pre-announced lower 2014 guidance to currency weakness in EM.

We’ll take our quick gain on this one and move on.

Action: NKE ($74.7) Sold to close the March 72.50/ 77.50 call spread at 2.15 for a .75 gain

New Trade $NKE – Olympic Dreams, February 6, 2014

NKE stock has been moving lower over the past 2 months, despite that impressive fiscal Q2 earnings report in December and more importantly their futures orders in front of a highly anticipated year of global sporting events.  However, NKE has massively under-performed the broader market and peers like UA, and is now teetering just above its rising 200 day moving average (around $69.50), a level that it has not breached in more than a year:

NKE daily, 50 day ma in pink, 200 day ma in yellow, Courtesy of Bloomberg
NKE daily, 50 day ma in pink, 200 day ma in yellow, Courtesy of Bloomberg

In addition, the $68 level was the breakout area in September (green line), and that is another potential support for NKE, in its oversold condition.  Finally, NKE was down for the months of December and January.  The stock has not had 3 straight losing months since the start of the bull market in early 2009.

NKE is near support right as the Winter Olympics begins, which kicks off a busy sports season for Nike, culminating with the World Cup in Brazil this summer.  That might refocus investors on NKE shares.

Trade: NKE ($71.40) Buy March 72.50/ 77.50 call spread for 1.40

-Buy 1 March 72.50 call for 1.95

-Sell 1 March 77.50 call at .55

Break-Even on March Expiration:

Profits:  Btwn 73.90 and 77.50 make up to 3.60, max gain of 3.60 above 77.50

Losses:  Btwn 73.90 and 72.50 lose up to 1.40, max loss of 1.40 below 72.50

Rationale: With the stock approaching fairly oversold levels after a period of relative performance, we see no shortage of potential near term catalysts that should help sentiment on the stock as we get through the Olympics this month and get closer to the company’s fiscal Q3 earnings report scheduled for March 20th.
Given the stock’s poor performance ytd, down about 9%, despite what appears to better than decent athletic apparel selling environment (See UA’s recent results) it is our sense that this could be a good entry for defined risk long exposure.