It’s once again time to ‘just do it’ in Nike Inc (NYSE:NKE). But rather than trying for a slam dunk with NKE shares, this strategist sees a ‘2.5-pointer’ as the game-winning play for bullish investors. Let me explain.
Last month’s Q3 corporate confessional from Nike reaffirmed consumers are once more in a buying mood for the athletic giant’s goods in a report headlined by strong gains in overseas markets. The same buying behavior hasn’t completely overtaken NKE stock though.
Shares are up 3.5% since the company posted an easy top- and bottom-line beat and offered out an upbeat assessment of a “significant trend change” for the better in North America. Nevertheless, the price action in NKE is still well-contained by bears that haven’t left the game yet.
Also noteworthy, even the notorious Pershing Square and its camera-friendly front man Bill Ackman decided to settle for a quick score in NKE stock –rather than playing the hedge fund’s more traditional long game. Then again, with other big bets the past couple years having gone entirely wrong for Pershing; placing a mildly optimistic and smaller 2.5-point wager on NKE to win still makes sense.
NKE Weekly Chart
Shares of NKE have enjoyed a nice, if not muted gain since I last wrote about it in early January. But after quickly tacking on a few percentage points from a handle consolidation breakout, bulls and bears have been wrestling with a high-level sloppy handle centered on the price chart’s corrective cup and 2.5-year intermediate highs.
The price action could be frustrating if one was anticipating momentum style gains to play out. Yet, the fact of the matter is that game has been over for some time now in NKE. It’s our view Nike shares will move higher from here, but the gains aren’t likely to set any records on Wall Street. It’s also more likely to look like a marathon win for bulls versus the gratification of a swift and dazzling sprint won on the price chart.
The Trade on Nike Stock
Given what’s been said and if investors are agreeable, suiting up with a lower-risk and well-placed moderately bullish spread in lieu of NKE stock is a strategy that makes sense and could score outsized returns in the process.
Using a long butterfly like this in NKE isn’t entirely a new idea, but I do enjoy sticking with winners. An April $65 / $70 / $75 call butterfly priced for $1.00 in January has expanded to $2.00 for a return of 100%. Furthermore, with still a bit of time on the calendar there is the opportunity to capture as much as $4.00 if NKE miraculously landed at $70 on expiration. Nice!
Reviewing NKE’s options for fresh positions, the May $70 / $72.50 / $75 call butterfly for 30 cents is favored. It’s a tighter game for bulls to win as profits are squished in-between $70.30 to $74.70. However, this 2.5-pointer game winner is a good deal less expensive. Further, it adds more time on the calendar to profit and bumps up the spread’s sweet spot to $72.50 to account for continued, but pragmatic optimism for Nike.
Disclosure: 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.
