Nike Short Strangle Could Net $135 In 2 Weeks

Nike (NKE) sitting right between the 21 and 200-day moving averages. The stock is also showing high volatility with an IV Percentile of 84% and an IV Rank of 76%

The Barchart Technical Opinion rating is an 8% Sell with a Weakening short term outlook on maintaining the current direction. 

NKE rates as a Strong Buy according to 16 analysts with 3 Moderate Buy ratings and 8 Hold ratings.

NIKE Inc. is engaged in the business of designing, developing and marketing of athletic footwear, apparel, equipment and accessories, and services for men, women and children worldwide. With the help of a strong brand portfolio, including Nike Pro, Nike Golf, Nike and Air Jordan, it offers premium, well-designed and high-quality products, in line with the latest customer trends. NIKE is the global leader in athletic footwear, apparel, equipment and sports-related accessories. Nike's 'swoosh' logo and 'just do it' tagline are widely recognized across the world, while its association with celebrity sportspersons, such as Michael Jordon and Roger Federer as well as top professional and college teams ensures a strong brand recall in the key U.S., U.K., Japanese and Chinese markets. The company's products include six key categories: running, NIKE basketball, the Jordan brand, football, training and sportswear (sports-inspired lifestyle products).

Today, we’re going to look at a short strangle trade. 

A short strangle aims to profit from a drop in implied volatility, with the stock staying within an expected range.

When implied volatility is high, the wider the expected range becomes.

The maximum profit for a short strangle is limited to the premium received while the maximum potential loss is unlimited. For this reason, the strategy is not suitable for beginners.

NKE SHORT STRANGLE

NKE is sitting right between the 21 and 200-day moving averages. Traders that think the stock might stay at this level over the next few weeks could look at a short strangle.

As a reminder, a short strangle is a combination of an out-of-the-money short put and an out-of-the-money  short call.

The idea with the trade is to profit from time decay while expecting that the stock will not move too much in either direction.

First, the short put which could be place around the 15 delta. Using the December 16 expiry, the 102 put could be sold for around $0.75.

Then the short call, also place at the 15 delta. The December 16 expiry, 117 strike call could be sold yesterday for around $0.60.

In total, the short strangle will generate around $1.35 per contract or $135 of premium.

The profit zone ranges between 100.65 and 118.35. This can be calculated by taking the short strikes and adding or subtracting the premium received.

Margin requirements may vary from broker to broker but are likely to be around $3,300.

If price action stabilizes, then short strangles will work well. However, if NKE stock makes a bigger than expected move, the trade will suffer losses.

Conclusion And Risk Management

One way to set a stop loss for a short strangle is based on the premium received. In this case, we received $135, so we could set a stop loss equal to twice the premium received, or a loss of around $270.

Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be around 104 on the downside and 115 on the upside.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

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