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NIKE, Inc. (NKE) Bears Brace for More Downside Ahead

Put volume ramped up on NKE amid last week's decline

by 5/28/2013 9:43 AM
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Put volume spiked on NIKE, Inc. (NYSE:NKE) last Friday, with approximately 11,000 contracts crossing the tape. This surge of activity represented more than five times NKE's average daily put volume of 1,949 contracts. Meanwhile, only 4,348 calls were exchanged on the stock.

The most active option was the June 60 put, where 4,080 contracts changed hands. The majority of these puts traded closer to the ask price, suggesting they were purchased, and implied volatility on this option rose 1.7 percentage points to 23.5% by the close. Open interest at the June 60 put jumped over the weekend by 2,576 contracts, confirming the initiation of new long puts on NKE during Friday's session.

NIKE, Inc. shares settled last week at $62.79, having advanced 21.7% year-to-date. Based on the volume-weighted average price (VWAP) of $0.74, Friday's June 60 put buyers will begin to profit if the stock falls below $59.26 (strike price less VWAP) by the time front-month options expire. That's a drop of 5.6% from current levels.

Friday's action continued a growing trend for NKE, as puts have recently become more popular than their call counterparts. During the past 10 days, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.29 puts for every call on the athletic apparel stock. This ratio arrives in the 58th percentile of its annual range, revealing a slightly elevated pace of put buying relative to calls.

The rising interest in bearish bets coincides with a pullback for NKE, which followed the major equity indexes into the red last week. The shares were resting on a weekly loss of 3.9% by the time Friday's close rolled around, which may have inspired Friday's strong interest in puts over calls. However, NKE found support in the form of its 10-week moving average, which hasn't been breached on a weekly closing basis since last November.


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