Two weeks ago we took a look at Nike (NKE), set to report earnings June 29th. We also detailed for a way to position for upside into the event with a low cost defined risk call calendar. Here was the initial trade idea, from May 30th:
NKE ($52.85) Buy the June 16th weekly / June 30th weekly 54 Call Calendar for 70 cents
-Sell to open 1 June 16th weekly 54 call at 25 cents
-Buy to open 1 June 30th weekly 54 call for 95 cents
Nike is up a bit from the initial entry and now with the stock 54.40 this trade is worth about 1.00 versus the .70 initially paid. That’s a decent profit for those that want to take the money. As far as trade management to hold the trade, the short 54 calls expiring this week still have a little extrinsic value on them. But the flipside is the stock is now above that strike (on a bit of a technical breakout) so the position risks losing money if the stock continues higher. Therefore a roll here makes sense for those that want to continue the position into earnings.
ACTION – Buy to close the NKE (54.40) June 16th 54 calls for .60
- Sell to open the June 30th 56 call at .70
New position – Long the NKE June 30th 54/56 call spread for .60 (currently worth .90)
Breakeven on June30th expiration – This makes money above 54.60 and loses up to .60 below. It is worthless below 54. If the stock is at or above 56 it makes 1.40. The roll doesn’t book any profits, it simply reduces risk by .10.