It’s time to “just do it” and get long Nike Inc (NYSE:NKE). But in this strategist’s view, the way to play the game in Nike stock is with a moderately bullish options position that enjoys a point spread worthy of making a Vegas odds-maker blush. Let me explain.
On the heels of last month’s earnings results, Nike stock looks in good position to move higher in 2018. In a difficult retail operating environment, Nike managed to make solid strides in manufacturing, distribution and strategic partnerships; as well as build out its international business and deliver fresh product.
Now and with signs of stabilization in the U.S. market and excess inventory cleared, the environment for a return to championship form looks to be in play for Nike.
And with a Nike stock chart that looks supportive of higher prices, it’s time to play a nice-size point spread courtesy of NKE’s options market.
Nike Stock Weekly Chart
There have been a couple false starts along the way, but now it’s time to “just do it.”
At just over two years into a correction of nearly 30%, Nike stock appears to be putting together the finishing touches on a bullish cup-shaped base with a well-placed, tight handle consolidation.
Looking ahead, it’s our view that the size and construction of the consolidation pattern bode well for an upside breakout and fresh all-time-highs for NKE, and shares will have little difficulty overcoming any challenges from a bearish double top.
The Trade on Nike Stock
For traders who see Nike stock’s upside potential but also realize life is a marathon, not a sprint, and shares aren’t likely to simply race aggressively higher; a moderately bullish long butterfly looks interesting.
One combination of interest is the April $65/$70/$75 call butterfly for $1.00 and roughly just 1.50% of the risk associated with holding shares of Nike. That’s nice. As well, compared to a share price of $64.21, the spread offers an attractive and nearby expiration profit zone, i.e. “point spread” from $66 to $74 with a max payout of $4 if Nike stock landed squarely on $70 the third Friday in April.
The big caveat with this “point spread” play is the butterfly can lose the full debit below or above the spread’s wings. That means if traders are overly gung-ho on Nike stock’s prospects or are focused on receiving dividend income, this spread is not a good fit.
But for like-minded bulls, this moderately bullish strategy looks like the right kind of gear for a winning season.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 and StockTwits.
