Nike Inc (NYSE:NKE) often gets caught up in the whirlpool trades of brick-and-mortar retail stocks and those have very few fans left. Of late we saw a small rekindling of hopes coming into earnings but that, too, has turned to hate once more. Macy’s Inc (NYSE:M), J C Penney Company Inc (NYSE:JCP) and Nordstrom, Inc. (NYSE:JWN) to name just three fell as high as 10% on disappointment results.
Management cited many reasons for the lackluster results, but the truth is that they collectively wasted a decade not preparing for the real cause — Amazon.com, Inc. (NASDAQ:AMZN).
As a result, they are now scrambling playing catch up, and when companies scramble they make mistakes. AMZN now holds too many advantages and has become too formidable of a competitor.
While Nike is not in the same boat as JCP or JWN, its stock gets punished in sympathy. Fundamentally, NKE stock still has the same prospects regardless of how well old retailers are doing. People across the globe continue to splurge and NKE products is on the menu. Nike management is a proven performer not likely to commit too many faux pas.
Nike’s PE is reasonable considering the growth it consistently delivers. Growth is usually a challenge for a company of its size and age. Furthermore, analysts have reasonable expectations and they spread their ratings evenly across three categories.
Click to Enlarge Technically, NKE stock recently fell out of an ascending channel but in the face of the retail woes it could have been worse. It now sits exactly in the middle of its 52 week range so if we consider that the highs and the lows were overshoots then by definition Nike stock is closer to fair value.
I recently shared a bullish set up in NKE that delivered profits fast and I was able to create income out of thin air. Today, with profits in hand, I want to repeat the process only on a different time frame.
The Trade: Sell the NKE Jan 2018 $45 naked put and collect $1 per contract. With a 15% price buffer this trade has a 90% statistical chance of expiring in my favor so I can retain maximum profits. Otherwise, I accrue losses for anything lower than $44 per share.
For a less aggressive version I can modify the trade into a credit put spread instead where the risk size is limited to the width of the spread less what I collect.
The Alternate: Sell the NKE Jan 2018 $47.50/$45 credit put spread where I have a slightly smaller buffer, but still yield 20% on risk.
E-mail sellspreads@gmail.com with questions or join me to learn more about options in a personal 1on1 webinar 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.
