Nike Inc. (NYSE: NKE) shares are rising today after a Citi analyst reiterated the stock at Buy ahead of next week's earnings report. Also, an analyst with HSBC said he prefers investing in the stock over competitors Puma and Adidas in European markets. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on NKE.
After hitting a one-year low of $51.37 last March, the stock hit a one-year high of $67.93 in December. NKE opened this morning at $58.00. So far today the stock has hit a low of $58.00 and a high of $59.81. As of 12:40, NKE is trading at $59.80, up $1.88 (3.2%). The chart for NKE looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $55 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just one week as long as NKE is above $55 at March expiration. Nike would have to fall by more than 8% before we would start to lose money.
NKE hasn't been below $55 since September and has shown support around $57 recently. This trade could be risky if the stock's earnings disappoint investors, but even if that happens, this position could be protected by the support the stock might find above $55 where it bounced in January.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in NKE.
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Reader Comments (Page 1 of 1)
3-13-2008 @ 9:25AM
diogenes silva said...
Thanks for a good job