With S&P 500 continuing to cruise higher, traders have the perfect opportunity to generate some additional income in their portfolios with a put write on Nike (NASDAQ:NKE).
We’re two weeks into 2020, and things couldn’t be going better. The U.S. economy is doing great and traders seem confident that trend will continue.
NKE has been drifting steadily higher in an up-trending channel since early December, driven in large part by strong consumer spending.
If you recall, we recommended a put write on NKE at the end of 2019. Back then, we were recommending the trade based on data from Mastercard, which showed us that the holiday shopping season had gone well.
With this trade, we’re betting on positive data from the U.S. Census Bureau later this week.
What’s Different About the Census Data?
As already mentioned, we know the holiday shopping season went well. And based on the Consumer Confidence index, we know that, while consumers weren’t more confident in by the end of December, they weren’t feeling significantly less confident.
We often note that the U.S. economy is driven by consumers. According to the St. Louis Federal Reserve, personal consumption expenditures made up nearly 70% of our gross domestic product (GDP) in the third quarter of 2019.
So, if we know the consumer is strong, and we know the consumer is important, can we know what kinds of things consumers are spending money on?
The Advance Monthly Sales for Retail and Food Services report can provide that level of detail. If you look at the November 2019 report, which was released in December, you can see a breakdown of consumer spending based on business type.
So, while the general information in Census Bureau’s Thursday release may just confirm the strength of the consumer, the more detailed breakdown could provide a boost to some specific industries within the retail sector. We think clothing and sporting goods stores will see a strong uptick, which should send NKE higher in the short term.
NKE Gradually Pushing Higher
As mentioned above, NKE has been in a steady uptrend since mid-December. In the chart below, you can see that the stock is at the lower end of its channel. Positive news for clothing and sporting goods could push it toward or even above the upper end of its trend, which would be great for a put write position.
Daily Chart of Nike, Inc. (NKE) — Chart Source: TradingView
NKE’s support at $100 is still a great level to sell puts at because it has already held up once before. As long as the puts traders sell have an expiration in early February, they can avoid holding the options too long.
As an added bonus, an expiration that’s less than one month out will give traders another opportunity to sell a put on NKE before the company reports earnings on March 19, 2020.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.