Bad news regarding the COVID-19 outbreak triggered more back and forth volatility last week, and it looks like this week will start the same way. We didn’t see any major fundamental shifts resulting from last week’s news, and we think today’s volatility provides traders with an excellent opportunity to sell a put write against Nike (NASDAQ:NKE)
Over the weekend, China reported 150 more deaths from COVID-19, and the number of affected people in Italy and South Korea increased. Many investors are concerned, and in premarket trading, index futures started slipping.
We remain cautiously optimistic, and NKE’s retracement gives traders the chance to collect additional premium by selling puts.
The Bullish Trend is Strong
Last week, we proclaimed Wall Street “immune to the coronavirus.” A long-term bullish trend doesn’t mean we won’t experience hiccups, and the outbreak-related pullback is just that: a hiccup.
Apple (NASDAQ:AAPL) announced the outbreak would hurt its performance for the quarter last Tuesday, and stocks struggled.
AAPL dropped more than 3% in premarket trading. But as we said at the time, whatever happens in premarket trading often gets reversed after the opening bell. Investors saw AAPL’s assurances that this disruption was momentary, and they decided it wasn’t worth panicking over.
The market rallied on Wednesday, and though it pulled back slightly on Thursday and Friday, there’s no reason to believe we are in for a full-on bear market.
If we keep that in mind, we can use this as an opportunity to collect a little extra premium while stocks are struggling.
NKE is in a Sector we Like
One of the main reasons we aren’t concerned about the COVID-19 outbreak is the strength of the U.S. economy. As we said last week, more Americans have jobs, and they are getting paid more than they used to. They’re spending that money.
COVID-19 doesn’t change that, and NKE, which is exposed to consumer spending, will benefit.
As you can see below, the stock has pulled back to support at $100, which is a solid place for buyers to step back in.
Daily Chart of Nike, Inc. (NKE) — Chart Source: TradingView
If support at $100 doesn’t hold, NKE could bounce off the $99 level, which means we have two excellent strike prices for a bullish put write.
We will get more news about the labor market on March 6, and a positive report could act as a catalyst for retail and consumer focused stocks. Picking an expiration early in March will let traders capitalize on a potential bounce.
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.