We’ve been holding a position on Nike (NASDAQ:NKE) for a little while. In fact, we recommended a trade on NKE last week. The stock has continued to push higher since then, and we think it is time to sell another put write.
Markets have been a little flat after the long weekend, which isn’t unusual in a week without a lot of U.S. economic reports.
Earnings have continued to come in above expectations, with impressive results in topline revenue. If that trend persists, the market should remain stable near or above its highs through February.
Some reporting suggested that Tuesday’s back-and-forth was because of the spread of an alarming virus in China. Over the weekend, healthcare workers were infected, and more deaths were reported.
The human cost of outbreaks is tragic, but history doesn’t show a very predictive impact on the financial markets during prior breakouts and healthcare scares.
Investors seemed to get over their fears relatively quickly Wednesday morning. The S&P 500 opened higher and set a new intraday high. But the index pulled back to Tuesday’s levels.
We have several new positions sitting in our watchlist while we wait for a few more earnings dates to pass. However, this is a good opportunity to compound our returns on NKE.
If you are already holding a put write on NKE, but you’re interested in this position, it’s probably best to close out your current trade before entering a new one.
Betting on Strong Earnings from NKE’s Peers
Retail earnings look good — despite the bad news from Target (NYSE:TGT) — and more hiring should be supportive for NKE through February.
We will also be watching some of NKE’s peers report earnings in early February, and positive earnings reports from those companies could build momentum for NKE.
They can also give us a warning about potential weakness in NKE.
For example, Skechers U.S.A., Inc. (NYSE:SKX) will be reporting in early February, and if the stock breaks its own support near $40 per share, traders may want to cover their NKE position.
However, our forecast points to a positive earnings surprise from SKX, Crocs, Inc. (NASDAQ:CROX) and Deckers Outdoor Corporation (NYSE:DECK), all of which report before the end of the first week of February.
Checking in Since our Last NKE Recommendation
Since last week, NKE has broken up out of the up-trending channel the stock has been in for the past month. In the chart below, you can see that the stock is trading above its old $102 resistance level, and that old resistance could act as support.
Daily Chart of Nike, Inc. (NKE) — Chart Source: TradingView
The $102 level would make an excellent strike price for a put write, and with the earnings for SKX, CROX and DECK coming out in the first week of February, traders will have plenty of warning if they need to exit this position.
Setting an expiration a little later in February should let traders collect a decent premium without committing them to the position for too long.
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.