Unusual Options Activity: Nike (NKE)

Nike (NKE)

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  • Traders bet on rally to continue.

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  • The February 14th $28 call options on Nike (NKE) saw a 14-fold rise in volume, going from 104 open contracts to nearly 1,500.

    With 25 days to go until expiration, the buyer of these options is betting on a 3.5 percent move higher in shares from the current price around $104.30.

    The option buyer also paid $0.45 to get into the trade, so the trade won’t profit at expiration unless shares hit at least $108.45 or higher.

    Shares of the company are already at all-time highs, and trading around 36 times earnings following a 30 percent rally in the past year.

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  • Action to take: Given the rally in shares, as well as the overall valuation in the company, this is one trade to skip out on. We like the company and its business model, but it’s a bit too expensive over our limit of $102.

    Although shares will likely continue to rally as the current market melt-up does, the amount of time left on the option leaves it susceptible to too much time decay to make for a compelling risk-reward.

    The company doesn’t report earnings until early March, so any potential pop from an earnings beat won’t happen until after expiration as well, so most big moves in the company before the trade expires would likely be to the downside.

    For investors, a pullback to $95 or under would give a reasonable entry point. The company has a powerful brand to it, but current valuations are just too high, and shares yield less than 1 percent.

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