Shares of athletic apparel and gear giant Nike (NKE) were bid early on and going against the grain in a sand trap of sorts for most bulls in Thursday’s session. The ever-influential analysts at Goldman added the name to its well-regarded “Conviction Buy List” in front of next month’s March 17 earnings announcement.
Technically speaking, with shares having formed a rather tight sub-10% deep flat base for almost the past five months, I can’t say that I blame the optimistic call. With NKE’s all-time-highs of 70.60 from two years ago situated only a handful of percentage points away—I like the idea of shares climbing higher all the more. There is that market thing though.
Conditions as many investors realize, are still tethered to a corrective environment following an incredible run over the past year. That being said if folks are bullish and still want to position based on Goldie’s insight and influence and perhaps what right now stands to be one of the stronger-looking bases out there in the land of large cap stocks – maybe an options play can make the situation a bit more suitable?
Checking the option board intraday and with shares up by about 0.5% at 65.25, implieds are slightly elevated relative to its current statistical range and readings over the past couple months. However, implied values in the low 20s relative to the high teens for both 20 and 90-Day SV readings aren’t exactly expensive. That seems particularly true given the long period of technical ennui, which is wholly responsible for the lower SV readings.
One idea for traders interested in positioning for a breakout but wanting a hedge would be to establish an ATM long straddle on the 65 strike. A slight directional lean favoring a long bias might also be considered. Overall, April seems like a better fit than the March contract as earnings fall in the very tail end of the front month’s cycle.
Unlike the March straddle, if implieds fail to lift by a strong degree, theta or time decay in front of the earnings event won’t be nearly as devastating to the April straddle holder as a tad more than 30 days will be left. That being said, directly in front of the announcement and perhaps even prior, depending on the whereabouts of the stock and implieds; traders should be in better position to make more fortuitious “buy, sell or hold” decisions that could easily pass the other guy by.
