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Nike Put Players Predict a Quick Retreat

Pessimists are picking up NKE's weekly 90-strike puts

by 7/12/2012 12:10:13 PM
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Even before its earnings-induced bearish gap in late June, NIKE, Inc. (NYSE:NKE - 90.90) has struggled beneath its 10-day moving average, which has contained all but one of the equity's daily closes for the past month. What's more, it looks like some options traders are expecting this trendline to smack NKE even lower over the next session-and-a-half, as evidenced by today's affinity for weekly puts.

Daily Chart of NKE since June 2012 With 10-Day Moving Average

At last check, the stock's at-the-money weekly 90-strike put has seen more than 1,300 contracts cross the tape on open interest of fewer than 850, pointing to an influx of eleventh-hour bets. Plus, 98% of the puts traded at the ask price, hinting at buyer-driven volume. By purchasing the puts to open, the traders are expecting NKE to breach the $90 level by the end of the day tomorrow, when the weekly options expire.

Now appears to be as good a time as any to scoop up the stock's short-term options. The security's Schaeffer's Volatility Index (SVI) has been descending since the aforementioned earnings release, and now stands at 22% -- in the 13th percentile of its annual range. In other words, NKE's near-term option contracts are relatively inexpensive at the moment.

However, from a sentiment standpoint, today's preference for short-term puts marks a change of pace among NKE options players. In fact, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.82 indicates that calls outnumber puts among options expiring within three months. Even more telling, this ratio sits just six percentage points from a 12-month nadir. Or, simply put, short-term options traders have rarely been more call-skewed during the past year.

Digging even deeper, we find that peak call open interest in the front-month series is docked at the July 92.50 strike, with more than 5,200 calls outstanding. Over the next week, this abundance of bullish bets overhead could translate into an added layer of options-related resistance for NKE.

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