Two weeks ago, we took our profits off the table on our latest Nike (NASDAQ:NKE) put write after the stock soared higher in the wake of the company’s stellar earnings announcement.
Wall Street was blown away. NKE beat revenue estimates by $1.45 billion and earnings estimates by a massive $0.47 per share — coming in at $10.6 billion and $0.95 per share, respectively.
This bullish news sent shares of NKE soaring. The stock closed at $116.87, and the morning after it reported earnings, it opened at $130.22.
Now is the perfect time to collect on NKE with another put write, and we think a few things are supporting the retail sector that will help the stock along.
The Trend in Retail
Last week Bed Bath and Beyond (NASDAQ:BBBY) grabbed everyone’s attention with its earnings report. BBBY posted its first same-store sales increase since 2016. If a laggard like BBBY is seeing so much success with online sales (and even physical locations) consumer spending must still be pretty good as we head closer to the holiday season.
Retailers like Target (NYSE:TGT) and companies like NKE are, therefore, much more appealing. After all, they have actually been performing well for the last few years.
Of course, these three companies have all shared a CEO before. Mark Tritton is leading BBBY forward. Before that, he was at TGT, and he even worked at NKE.
So, while BBBY is benefitting from new leadership, TGT and NKE are part of that new leadership’s legacy.
The real story, though, is stimulus. A new stimulus package would be huge for retailers like NKE.
Though the president seemed to call off all negotiations, he quickly walked that directive back. Treasury Secretary Steve Mnuchin and Speaker of the House Nancy Pelosi have continued negotiations amid the uncertainty, and we’re still holding out hope for some kind of action.
Even if something doesn’t materialize soon, we think investors have priced their optimism into the market, meaning NKE’s already gotten a price boost. We just need it to hold out until the put write we sell expires.
Setting Up Support
Not surprisingly, NKE slid back a bit after gapping higher post-earnings. Stock traders wanted to lock in their profits, but the selling didn’t last long. NKE only pulled back for a few days before finding support at $124 and bouncing back up.
Daily Chart of Nike (NKE) — Chart Source: TradingView
Even after the president seemed to pull the plug on more stimulus, NKE kept heading higher. Currently, it is challenging its post-earnings high. We don’t think this resistance level will last long. NKE is just too bullish to stop at this level.
The strike price for this trade should be clear. The stock should remain above support at $124, so setting a strike there will maximize trader’s profits while somewhat limiting their risk.
There is one market-moving even coming up though: the U.S. election. We talked all about the election in this piece, and it’s important to consider its impact on prices in the short term.
Traders looking to minimize the risk the election poses should look at expirations before Nov. 3.
On the date of publication, John Jagerson & Wade Hansen did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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