Dear Momentum Options Subscriber,
Shares of Nike (NKE, $53.27, down $1.04) have been in a downtrend since they peaked north of $65 in mid-March. The 52-week high is just above of $68, and the 50-day moving average looks nasty. Trouble started in mid-April when the 50-day moving average breached the 200-day moving average, which formed a “death cross.” This is usually a bearish setup, but I often mention that “stretch” levels can come into play, which is what we are currently seeing in the market.
Shares have rallied back to $55 this week, and that has set up a great opportunity to possibly “short” the stock by using put options. While a bearish position would have risk to $56-$57 over the near term, a move below $53 would represent serious trouble for the stock and could lead to a possible backtest to $50.
We have traded Nike many times over the years, although usually in a bullish fashion around earnings. The company isn’t scheduled to announce its next set of results until later this month on June 28 and, like I always say, earnings trades can be tricky.
Analysts are expecting the company to earn $0.47 a share on revenue of $8.28 billion. Nike has blown away estimates over the past four quarters by $0.06, $0.02 and $0.07 twice, respectively. Shares have responded well over the years on earnings beats, but they fell nearly 4% after the last report in March.
It is often hard to short a strong blue-chip, or “bellwether” company, based on its reputation and chart action over the years, but NKE looks primed for a continued pullback.
The NKE July 52.50 puts (NKE160715P00052500, $1.60, up $0.40) look like a juicy play, as these options will easily double if shares fall below $50 by mid-July. These options were on my radar for a potential trade, but I didn’t like that they gapped up this morning, as we missed the 30%+ move.
The NKE July 50 puts (NKE160715P00050000, $0.82, up $0.27) have zoomed nearly 50% on today’s pullback in the stock and, while I like them at current levels, I would rather trade the aforementioned $52.50 strike put options at cheaper prices if shares rebound back to double-nickels ($55). For now, we are still on the sidelines.
As a “pair trade,” Under Armour (UA, $36.42, down $1.34) stock is in the same boat as far as the technical picture. Near-term resistance is at $38-$39, and today’s pullback gets support at $36-$35 back in the mix. I’m more bullish on UA than I am on NKE, but both charts are telling me that bearish trades are the way to go with these names over the near term.
The bears have pushed lower lows in the overall market today, but the bulls will try like the devil to hold prior support levels going into the closing bell. Today’s final hour of trading will be in focus and, if I take additional action, I will send out a New Trade alert.
The Dow is up 78 points to 17,622, while the S&P 500 is slipping 3 points to 2,068. The Nasdaq is lower by 14 points to 4,820, and the Russell 2000 is off 7 points to 1,142.
I have updated the parameters of our latest trade in Microsoft (MSFT) below, so let’s go check the tape. I could also have a New Trade ahead of the closing bell, so stay on high alert.
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Closed Momentum Options Trades for 2016: 49-16 (75%). All trades are dated so new subscribers can look at the past history to see how the trades have played out.
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All prices given in this update are current as of 1:45 p.m. EST.
I hereby disclose that I will be participating in the following trade(s).
Microsoft (MSFT, $50.23, up $.53)
MSFT July 48 puts (MSFT160715P00048000, $0.56, down $0.08)
Entry Price: $0.71 (6/16/2016)
Exit Target: $1.40
Stop Target: None
Action: I mentioned I had MSFT on my watch list a few weeks ago, and the move below $50 was the action I was waiting for. At the time that I was profiling a possible trade, shares were trapped between the 50- and 100-day moving averages and the $52.50-52 area. As you can see, it has been all downhill since, as a “mini” death cross formed when the 50-day moving average fell below the 100-day moving average.
MSFT made a big splash after announcing that it was acquiring LinkedIn (LNKD, $191.36, up $0.07) on Monday. My first thought was that MSFT overpaid for the LNKD acquisition, and that has been echoed by a few of the suits-and-ties. I will expand on this story in the coming days.
Resistance is at $50.50-$51 and the 200-day moving average. Support is at $49.50-$49. A close below the latter would be a bearish development.
Inovio Pharmaceuticals (INO, $10.068, down $0.01)
INO July 12 calls (INO160715C00012000, $0.25, down $0.10)
Entry Price: $0.80 (6/1/2016)
Exit Target: $1.60
Stop Target: None
Action: Resistance is at $10.75-$11. Support is at $10.25-$10 and the 50-day moving average.
Editor and Chief Options Strategist