Yesterday’s selling was a shot across the bow for complacent bulls. But the cannonball lacked firepower and the end of day rally all but negated the message. It did, however, give reason to search for strength — those dominant stocks that were able to rise amid the bear raid. Chief among the muscle-flexers was Nike Inc (NYSE:NKE) and NKE stock, which rallied modestly on the day.
And yesterday’s bullishness wasn’t a one-off. NKE stock turned a new leaf in October and now boasts numerous bullish characteristics.
Although the long-term trend for Nike has been rudderless for months now, the short-term trend is looking up. The most notable development for NKE was last month’s high volume breakout which busted the stock back above $54, a key resistance level.
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The 200-day moving average was also broken propelling the stock to the bull zone, which rests atop the major moving averages you see in the accompanying chart.
The post-breakout base forming in recent weeks should further bolster buyers’ resolve. NKE stock has maintained its gains forming a classic sideways consolidation pattern on low volume.
Throw it all together, and I see little reason why Nike’s nascent uptrend won’t see additional upside.
Buy NKE Calls, “Just Do It”
Analyzing implied volatility levels is always a smart idea when selecting which strategy best fits the situation. The implied volatility rank for Nike stock options sits at a lowly 22%. And that means option premiums are cheap. To capitalize, consider buying a Jan $55/$60 bull call spread for around $2.07. The vertical spread consists of buying to open the Jan $55 call, while selling to open the Jan $60 call.
The max loss is limited to the initial $2.07 cost and will be forfeited if the stock sits below $55 at expiration. If, however, the stock can rise above $60, then you’ll capture the max gain of $2.93 at expiration.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out Tyler’s trading blog, Tales of a Technician.
