NKE looks primed for some good ol’ fashioned buy side momentum. The stock is well off the May 3rd high of 114.81, but yesterday’s price action resulted in a seemingly important turn for the stock.
First, it’s important to note the strength of 90 support area (purple line). Over the past year, the stock has tested this area approx five times, only pushing below it once in response to earnings…quickly bouncing back above.
Second, yesterday’s move pushed it through down trend resistance (blue line), which is seemingly bullish. Today the stock is retracing to down trend resistance turned support, and will need to close above the line to strengthen this potential technical indicator.
Third, there has been a moderate uptick in implied volatility (IV) in NKE. Dec IV is 26%, and we’ve seen front month IV as low as 19% in recent months.
If you have the capital, we like buying NKE and selling Dec12 97.50 Calls against it @ 1.50 credit or better. Based on the current stock price of 95.40 that would result in a cost basis of 93.90, translating to a 3.83% gain in 31 days if the stock rallies and shares are called away. Fine with us!
If shares are not called away, we would continue to sell Calls and further reduce cost basis. If we eventually managed to get cost basis below 90 that would be a lovely day! That said, we highly doubt that outcome as we expect shares to move higher into the holiday season and beyond. Digital Sports Unit baby (Google it)!