Shares of athletic apparel company Nike (NKE) have been in a downtrend for the past few months, but the share price has moderated in recent weeks. One trader sees the possibility for a rebound ahead.
That’s based on the September $125 calls. With 137 days until expiration, 10,714 contracts traded compared to a prior open interest of 300, for a 36-fold jump in volume on the contract. The buyer of the calls paid $12.43 to get into the trade.
Shares are going for about $127, so the option is already about $2 in-the-money. The strike price is well off of Nike’s 52-week high of $179 per share.
Even with shares down 9 percent over the past year, the company has seen a slight rise in revenue, and earnings have been flat. The price decline has taken the company from 76 times earnings to under 27 times earnings, a slight premium to the overall market.
Action to take: The company is a strong global brand, and will likely continue to see its value rise in the years ahead as it continues to grow, particularly in international markets. That makes for a reasonable long-term investment. And at current prices, shares yield 0.9 percent with room for further increases in time.
For traders, the September calls should play out with high double-digits or better, particularly if the market in general turns around in the months ahead. Traders with less capital to allocate for trades might want to use the same strike date, but target an option with a higher strike price.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.