Nike (NKE) is one of the much loved but crowded consumer discretionary stocks like HD & SBUX. NKE saw its shares crash by about 20% from its recent all time highs on August 24th, before recovering in just a few trading days in late August. Since then the stock has been consolidating above $110, but remains in a wicked downtrend from the early August highs:
Put options in NKE are active today, trading 4x average daily volume with most coming in one three legged trade. When the stock was $111.71 it looked like a trader sold to close 9400 Oct 105 puts at $1.71 and bought to open 6300 of the Oct 30th weekly expiration 104/95 put spread for $1.18.
Regular readers know that we don’t place a ton of value on unusual options activity for a couple reasons. Most importantly, without intimate knowledge of the trade, it can be very difficult to figure out whether or not the trade is directional, or a hedge, or a vol position.
In this trade the Oct 105 puts (closing), traded closer to the offer than the bid, that suggests the options were bought. But in this case the closing leg is attached to an opening downside put spread. The put spread looks bought, and it doesn’t make any sense for a trader to close a short put position and replace it with a long put spread. So we are assuming that a trader is rolling out a bearish put position (possibly a hedge, or an outright bearish play).
Also, selling the Oct 30th 104/95 put spread, $9 wide at $1.18 isn’t great risk / reward when you consider the stock traded as low as $95 on August 24th and has their fiscal Q1 earnings on September 24th. Potentially risking up to $7.82 to possibly at most make $1.18.
30 day at the money implied volatility in NKE is only down about 15% from its recent multi-year highs while other hard hit stocks in Aug, like HD & SBUX have seen short dated IV come in 30% from their panic highs. Obviously the earnings event is keeping vols bid, but this highlights that fact that elevated options prices can be used against long stock positions to add yield and/or leverage in the near term, and any protection plays should incorporate spreads.
So you’ll see a lot of options activity reported with evidence of direction based on the prices of the screens at the time. But in this case that is likely wrong and other factors have to come in to play when you analyze these trades.