How to Trade Nike Inc (NKE) Stock After Earnings

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Thanks to Amazon.com, Inc. (NASDAQ:AMZN) the retail sector has not had much love from Wall Street. And Nike Inc (NYSE:NKE) stock often suffers pain through association. After earnings, however, NKE stock is making an emphatic statement to silence the bears.

How to Trade Nike Inc (NKE) Stock After Earnings

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So I am sharing a trade that would still allow me to buy NKE stock at a discount even if I missed the trade of the day.

Fundamentally, Nike is a global giant that is still firing on all cylinders. It has excellent management and an excellent pedigree. It rarely gives traders reasons to sell the stock. Even though traders do punish NKE stock sporadically (but almost never for reasons specific to NKE).

Most often, Nike shares get caught in a swarm of retail sector hate. Even though it’s not a brick-and-mortar model, this stock takes the brunt of the selling.

To that point, NKE reported earnings Thursday night, revealing that Nike is collaborating with the enemy of traditional retail — Amazon. Finally, Nike will now test selling directly on Amazon.com, which should in theory sever this imaginary tether between it and say the price actions in Macy’s Inc (NYSE:M), or J C Penney Company Inc (NYSE:JCP).

This unease over the retail sector makes for weak hands in Nike stock. Case in point, NKE fell out of an ascending channel in early may, suffering two 6% corrections in about a month. But it’s not all bad news. While painful current NKE stock holders, this is technically good news. These two dips may have set a double bottom from where bulls can build a rebound rally.

How to Trade NKE Stock

But today’s trade won’t be to chase the potential upside as I am already long the stock. Instead I will generate more income by selling downside risk against proven support. Traders emphatically rejected the $50 level as too low for NKE stock.

Recently I shared a NKE trade which is now a big win that came too quickly. So today I merely want to repeat the process only for a longer period of time knowing that I already have profits in hand.

The Trade: Sell the NKE Jan 2018 $50 put and collect $1.20 to open. This is a bullish trade that has an 85% theoretical chance of success. If price stay above my strike then I get to keep my premium for maximum gains. Otherwise, I have to own the shares and would suffer losses below $48.8.

If I don’t want to risk owning NKE shares I would sell a credit spread instead.

The Alternate Trade: Sell the NKE Jan $50/$47.50 bull put spread where the chances of success is the same but the risk is finite. Here the spread could deliver 20% in yield. This is much better than buying the stock here and hope it continues higher to $69 per share just to match the performance of the spread. In either case I don’t need a rally to win and I have a 13% buffer to boot.

Investing in stocks and options is risky so I never expose my portfolio to losses that would break me.

Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/how-to-trade-nike-inc-nke-stock-after-earnings/.

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