Option Plays in Nike (NKE): A Long Call and a Bear Call Spread
Are you a Cramer fan or do you just like Nike’s products? Jim Cramer offered a “screaming buy” on Nike (NYSE: NKE) shares on a recent edition of Mad Money on CNBC, saying the athletic apparel and footwear giant should benefit from the resurgence of the global consumer (particularly in China). Cramer added that he sees the stock potentially going to $90. As of last Friday, NKE was trading around $74.70, gaining 22% since its February low.
In line with Cramer’s advice, you could buy 100 shares for nearly $7,500, or explore a bullish options strategy using less capital. On the flip side, if you take a contrarian view of all things Cramer (or you think Nike is nearing the end of its uptrend), a bearish options strategy might be preferable to selling the shares short. Options strategies can be useful whether a trader is bullish, bearish, or even neutral on the underlying stock.
Below are just two potential options strategies for NKE shares – these are not buy-sell-hold recommendations, just hypothetical examples of two trades – one bullish and one bearish, depending on whether you think Nike is still poised to shoot higher or if you see a slowdown ahead.
*Option prices given as of Friday afternoon
Bullish Option Strategy: Long Call
One simple way to follow Cramer’s bullish disposition is by buying a long call. The in-the-money October 72.50 call is currently offered at $5.90, or a $590 outlay per contract. The maximum amount a call buyer can lose is 100% of the premium paid (as opposed to a stock buyer, who has unlimited risk down to zero in the shares). Potential gains, for both call and stock buyers, are theoretically unlimited if the stock moves higher. Breakeven at expiration for this long call is $78.40, or about 5% above Nike’s current share price. The majority of option positions are not held until expiration; a call buyer, for example, can sell out of his trade at any time, if target profits or stop-loss levels are reached.
Bearish Option Strategy: Bear Call Spread
Not as confident as Mr. Cramer? You might want to consider a moderately bearish strategy such as a bear call spread. The July 80/75 call spread is currently priced at a credit of $1.90, which is created by simultaneously selling the July 75 call and buying the July 80 call. If NKE remains below the 75 strike through expiration, the call spread seller keeps the entire credit collected. The maximum potential loss would occur if NKE finishes above 80 at July expiration – is $3.10. The upside breakeven for this trade is $76.90. Anywhere below that breakeven price, the call-spread seller is profitable.
Your Take
Are you a raging Nike bull or do you prefer Reebok? Are you with Cramer or against him? Let us know your thoughts on Nike or your favorite name in the athletic-apparel sector.
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Photo Credit: TuTuWon
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