Last week when shares of Nike (NKE) were trading $66.50 we previewed their fiscal Q3 results (read here), and concluded:
A beat and raise and stock on its way back to prior highs, near $70. But the stock’s gains since the fall could discount a bit of good news.
For those who think a guide lower would cause the stock to break below $65 and retest $60 in the coming weeks, defined risk strategies make sense
The company reported results las night that beat expectations on strong international momentum (specifically China), but I suspect the stock is up today in a bad tape because of the commentary about a positive turn in North American sales, something that has been weighing on investor sentiment.
Let’s take a look at the trade idea from last Friday:
NKE ($66.50) BUY APRIL 65 / 60 PUT SPREAD FOR $1
-Buy 1 April 65 put for 1.50
-Sell 1 April 60 put at 50 cents
Now with the stock at $66, the April 65 / 60 put spread is worth $1 (what it cost last week with the stock a tad higher, the April 65 put can be sold to close at $1.33 and the April 60 put can be bought to close for 33 cents. This trade was a wash, and to be frank it is getting a bailed out a bit by the weak tape. Given the positive tone about the one thing suppressing sentiment, it makes sense to close the trade and move on. On the flipside though, if you thought the broad market is going to make lower lows and retest the February 9th lows then it is really a market call at this point. Its my experience though when you get bailed out on a fundamental trade by the market it is usually prudent to close the trade and move on.