A month ago we looked at NKE stock and though found it to be a decent candidate for a turnoround into last night’s earnings. We detailed a trade that sold near term calls to finance ones expiring today. Here was the initial trade and rationale at the time:
NKE ($52.85)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
The ideal scenario is that the stock grinds a little higher towards $54, which is also its 200-day moving average and the June 16th calls expire worthless, and the June 30th’s that catch earnings have appreciated, or at least the short call offset the decay of the long call.
The max risk of this trade is the 70 cents in premium if the stock were to go well above the $54 strike or well below on June 16th weekly expiration.
The main point of this trade is to help finance a portion of an out of the money call for an event, and ultimately (once the June16th calls expire) look to spread the long June 30th call by selling a higher strike call in that expiration to make a vertical call spread to further reduce the premium at risk for an inexpensive position into the earnings event.
After the initial post, NKE stock quickly got to our strike which meant small profits but also that a decision had to made on the short leg. Here was the update from June 13th:
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.
NKE reported earnings that beat analyst estimates and the stock is up nearly 9% on the report. With the stock 57.80 the June30th 54/56 call spread is worth 2.00 and expires today. Therefore it can be closed at the 1.40 profit.