Nike shares may be forming a triple bottom. How to bet on a comeback using options

Published Wed, Apr 17 202410:13 AM EDTUpdated Wed, Apr 17 202411:04 AM EDT

Nike has underperformed the market and its sector since mid-2021, but recently growth expectations from analysts have bottomed. With China's growth showing signs of a rebound and valuation near its historical low, it could be time for a comeback. We'll discuss how to set up an options trade to bet on a turnaround. Nike (NKE) has formed a triple bottom at the $90 support level over the past 3 years and recently it just bounced higher off this support. With a gap above at $100, our short-term upside target would be to fill that gap and $105 resistance level above that. Nike currently trades at the lower end of its historical valuation at 24 times forward earnings, which is a 20% discount to its historical average and well below the 30- to 40-times it traded for the previous few years. With growth expectations starting to recover on the back of China growth and the Paris Olympics this year, Nike is looking at a second half recovery of sales declines. The trade Options are expensive on NKE at the moment with an implied volatility rank above 60%, so I suggest using a vertical spread to offset the cost of buying upside calls. I'm going out to the June expiration to buy the $92.5/$100 call vertical at a $2.99 Debit. This entails: Buy June $92.50 Calls @ $4.53 Sell June $100 Calls @ $1.54 This strategy will risk a total of $299 per contract if NKE is below $92.50 at expiration and potentially profit $451 per contract is NKE is above $100 at expiration. DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.