Nokia Oyj (ADR) (NYSE:NOK) continues to look good both off and on the price chart. But for investors, tempering the bullish forecast with key protection on Nokia stock makes a good deal of sense. Let me explain.
Back in late January, I covered Nokia’s building prospects. Optimistically, and without getting too hopeful, it appeared to be the start of a new era for the company after years of atrophying business and a shrinking share price.
A couple months later, Nokia stock looks reinvigorated. During this period, shareholders have begun to realize a bit of relief as NOK shares rallied just over 10% to form a new potential uptrend.
Adding support to those gains, Nokia’s less-risky, licensing agreements with Asian-based HMD Global (which pays Nokia royalties for handsets and tablets sold) is moving along smartly in overseas markets.
Case in point, the Nokia 6 sold out in China in under a minute back in January. And as InvestorPlace contributor Chris Lau pointed out recently, those sales carry attractive profit margins and help NOK stock’s bottom line.
Secondly, Nokia announced an overdue restructuring of its networks business. The company has peeled off a layer of management and split the business into a services and mobile networks division. The restructuring effort is good news and should put Nokia into stronger position for capturing future growth as markets transition into 5G.
None of this is going to happen overnight and to be quite frank, Nokia does have its share of critics. Nevertheless, recent analyst upgrades and improved Nokia stock performance are hinting at better days ahead, which could pay investors “dividends” on top of today’s attractive 3.5% yield.
NOK Stock Weekly Chart
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Now, NOK has importantly put itself in position to form a key pivot low. As the provided weekly chart shows, Nokia stock has pulled back in a fairly constructive and tight manner over the past four weeks.
What the modest corrective activity doesn’t reflect is Nokia stock’s test of a newly-formed Golden Cross pattern on the daily chart. For a second time in two weeks NOK has settled between the bullishly aligned 50- and 200-day simple moving averages. That’s also desirable technically, but NOK isn’t entirely out of the woods just yet.
With shares at $5.22, I’d settle for Nokia stock remaining above $4.90 and viewing the situation favorably. That’s another 6% of downside, but it would have the impact of taking out the prior high of $4.99 and maybe flushing out some weak hands while still confirming a new uptrend for NOK.
NOK Stock Bullish Strategy
A combination of not having 50 cent wide strikes in longer-dated maturities and current pricing of $5.22 makes for a less than ideal situation for positioning, given what’s been said. But and after reviewing the Nokia stock options board, for investors looking to enter into NOK right now ; the July $5 married put for $5.53 is favored.
For the additional premium of 31 cents beyond what one would pay in Nokia stock, the trader maintains a definitive stop loss at $5.00 courtesy of the purchased put in conjunction with shares.
The insurance allows for any losses to be limited to 10% and as discussed, keeps the trader from potentially holding the bag if an uptrend in Nokia stock fails or takes longer to form than expected.
Ultimately, the protection could come in handy, albeit not a desired outcome, when Nokia reports early next month. And in the event an uptrend is confirmed and then reaffirmed with fresh highs — adjusting into a collar or other money management techniques would be considered.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
