Jun 20, 20214 min
Updated: Jun 25, 2021
Updated 6-25-21
Hey everyone,
With NKE releasing their earnings yesterday, there is good and bad news.
For those who have NKE in their portfolios, it was good news that you saw a dramatic rise in the price due to it's strong earnings.
The bad news is that if you set up a bear call spread, your brokerage's buy stop order may not have been triggered into purchasing your 100 shares due to the stock having a large gap up. If this is the case for you, we may recommend that you manually purchase 100 shares to cover yourself if NKE continues to rise. This is an unfortunate loss and we apologize if this happened to you. We did not expect that NKE would rise this significantly. We will be writing more about this event this week and how we can be more aware of this moving forward.
If you have any questions, feel free to contact us.
Best,
Steve and the Call to Leap Team
Hey everyone!
Here are some advanced trading recommendations that you can consider trying out yourselves this week. Like always, feel free to tweak some of these numbers around to see how they fit your own risk tolerance.
NKE Bear Call Spread/Cash-Secured Put Combination Trade
Since Nike is about to have their earnings this Thursday (after market close), I'm thinking about setting up a bear call spread/cash-secured put combination trade 15-30 minutes before the market closes on Thursday. Why do this trade? It's because implied volatility is highest before earnings, meaning that premiums are relatively higher. Higher premiums are favorable for short-term sellers like us. After NKE releases their earnings, the stock is most likely going to experience a volatility crush, which means that the premium values are going to shrink down. If this happens along with NKE's price not moving much, I'm going to quickly close my position and lock in my profits.
NKE Bear Call Spread
I personally already have 200 shares of NKE of which I purchased them for around $141. I don't mind owning more shares if NKE delivers a great report and it rallies back up to the $140 level. But just in case NKE delivers their earnings and the stock temporarily drops, I want to take advantage of the IV crush and price movement.
Step 1: Buy one July 30, 2021 call option at the $165 strike for $15 (Delta 0.02)
Step 2: Sell one July 30, 2021 call option at the $140 strike for $113 (Delta 0.21)
Step 3: Set a buy stop order for 100 shares at $139.
Credit: $113 - $15 = $98 per contract
NKE Cash Secured Put
On top of me setting up a bear call spread, I may also sell a far OTM cash-secured put. The RSI for NKE is on the lower end and may show that it's a little oversold. Also looking at the charts, NKE next support line might be around the $120 level.
Step 1: Sell one July 30, 2021 put option at the $119 strike for $148 (Delta 0.22)
Credit: $148 per contract
Final thoughts on NKE:
The ultimate goal for this trade is for NKE to stay between $119 and $140 until expiration. If it does, all of your option legs will expire worthless and you can lock in all the total credit you collected.
At the same time, it's not necessary that you have to wait until July 30 to close your trade. You can always close your positions early and separately. For example, if NKE drops in price, you can close your BCS first and then close your CSP a couple of days later if you are profitable. Conversely, if NKE increases in price, you can close your CSP first and then close your BCS a couple days later if you are profitable.
PINS Bear Call Spread
PINS seems to be running a little hot on it's RSI and might be due for a pullback in the near future. You can also consider setting up a bear call spread on this one too.
Step 1: Buy one July 16, 2021 call option at the $105 strike for $20 (Delta 0.02)
Step 2: Sell one July 16, 2021 call option at the $85 strike for $67 (Delta 0.15)
Step 3: Set a buy stop order for 100 shares at $84.
Credit: $67 - $20 = $47 per contract
Again, you don't have to wait until the July 16 expiration date to close your position. You can always close out earlier when you are profitable.
Also note that with these numbers we give you, they are more on the extreme sides of the bid-ask spread. You can always do a little trial and error to see if you can sell these options for a higher price, or buy these options for a lower price.
Happy trading and investing! 😎
-Steve and the Call to Leap Team
The following article is strictly the opinion of the author and is to not be considered financial/investment advice. Call to Leap LLC and the author of this article does not claim to be a registered financial advisor (RIA) or financial advisor. Please visit our terms of service and privacy policy before reading this article.