Nike Inc (NKE) stock has been killing it in 2015. It’s up 37%, which is all the more impressive when compared to the rest of the market. Even after October’s manic melt-up, the S&P 500 is only up 2% for the year.
That’s what we technicians like to call outperformance, or relative strength.
If you’re a believer that strength begets more strength — which is really just a corollary to a trend in motion stays in motion — then NKE stock is worth a look.
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I mean, what’s not to like? Nike’s price chart is a rocket ship. It’s like Nike’s swoosh logo, only a bit more vertical. With the stock above all major moving averages and just shy of all-time highs it’s a layup to bet on the bulls here.
What’s more, NKE stock has consolidated nicely over the past month, allowing for some much-needed digestion of its recent gains. This stands in stark contrast to the rest of the market, which remains in need of a pullback to work off its overbought status.
Nike’s sideways base sets up an easy breakout play over resistance. The $133.65 ceiling is currently capping prices, but its resistance is futile. The bulls will eventually prevail as they have every other time the bears have tried to stem the tide.
Ride NKE Options to Victory
The flexibility of the options market beckons to would-be Nike stock speculators looking to game the coming breakout.
Let’s consider two potential strategies: one for the gunslinger, and one for the conservative types.
The Gunslinger: If you’re looking for massive upside potential coupled with limited loss, you might consider a simple long call option. Try the Jan $130 call on for size. It currently costs $6.30 and locks-in the right to buy 100 shares of NKE at $130 until January expiration. The expiration breakeven is $136.30, requiring Nike stock price to rise 3.4% from here to at least breakeven on the trade. Anything higher than that is pure profit come expiration.
The max risk is limited to the initial $6.30 paid at trade entry.
The Safer Side: If cutting costs in exchange for capping profits sounds like a fair trade-off then consider a call vertical spread instead. Buy the NKE Jan $130 call and simultaneously sell the Jan $135 call for a net debit of $2.50. The max risk is limited to the initial $2.50 and will be forfeited if NKE sits below $130 at expiration. The max reward is limited to the distance between strikes minus the net debit, or $2.50, and will be captured if NKE stock can rise above $135.
While limited, the potential profit still offers a 100% return in the call spread.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
