Closing Nike (NKE) October Put Spread

by riskreversal October 7, 2016 1:47 pm • Trade Ideas

On Spetmeber 23rd we previewed NKE’s earnings and detailed a trade idea to target the $50 level. Here was the trade and our rationale at the time:

If the company were to just come in line, and offer weaker than expected FY2017 guidance, then the stock will be back at $50 very quickly. I want to target that level with a trade structure that looks to offset the near term inflation of options prices into the print.

So what’s the trade?

*NKE ($55.40) Buy Oct 55/ 50 Put Spread for $1.25
  • Buy to open 1 Oct 55 put for 1.55
  • Sell to open 1 Oct 50 puts at 30 cents

NKE reported earnings that beat estimates (low quality, very low tax rate) but their guidance on future orders disappointed. The stock reacted negatively to the news and has drifted down since then.

This morning, NKE stock nearly matched its lows of the Summer and has bounced a little intra-day alongside the borader market. With NKE now $52 this trade is worth 2.90 versus the 1.25 origonally paid. We’re going to close it now for a profit in case the stock just put in a temporary low with time running out until expiration:

ACTION – Sold to close the NKE ($52) OCt 55/50 put spread at $2.90 for a 1.65 profit