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NIKE Option Bears Aren't Buying Today's Bounce

NKE brushed its lower Bollinger Band yesterday, suggesting it was oversold

by 11/16/2012 2:29 PM
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Given that NIKE, Inc. (NYSE:NKE - 92.26) has surrendered nearly 20% since hitting a record peak of $114.81 on May 3, it's not a shock that option players have been scooping up puts over calls at an accelerated clip in recent months. Specifically, the stock's 50-day International Securities Exchange (ISE)/Chicago Board Options Exchange (CBOE)/NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.53 ranks higher than 97% of other such readings taken in the past year. In other words, puts have been bought to open over calls at a near annual-high pace during the past 10 weeks.

This penchant for puts has translated into an elevated Schaeffer's put/call open interest ratio (SOIR) for the stock. In fact, NKE's SOIR of 1.48 ranks in the 73rd percentile of its annual range, indicating short-term speculators are more put-heavy than usual toward options expiring in the next three months.

This trend is being continued in today's session, as well. Around 24,000 put contracts have crossed the tape so far today, representing almost four times the average intraday pace. Meanwhile, fewer than 5,800 call contracts have traded.

NKE's weekly 11/23 options are in focus, with the stock's 87.50 and 90 puts emerging as the two most-active strikes. Of the roughly 4,100 and 7,000 contracts that have crossed, respectively, the majority have done so at the ask price, and volume is easily outstripping open interest, pointing to buy-to-open activity.

By purchasing the 87.50-strike put for a volume-weighted average price (VWAP) of $0.24, traders expect NKE to land below the $87.26 mark (the strike minus the VWAP) by next Friday, when the options expire. Meanwhile, by initiating the 90-strike puts for a VWAP of $0.47, speculators will profit with each step south of $89.53 NKE takes over the next week. These breakeven levels represent a respective 5.4% and 3% slide from the stock's current perch.

As touched upon, NKE has struggled on the charts since tagging its technical milestone in May. Highlighting this dismal price action has been the stock's 20-week moving average. This trendline has ushered the equity lower since mid-June, and has surrendered just one weekly close in that time.

In today's session, though, NKE is making a run higher. The equity has added around 1.6%, after the company announced a two-for-one stock split, and the $570-million sale of its Cole Haan line to Apax Partners. However, the security briefly touched its lower Bollinger Band on Thursday, suggesting NKE had entered oversold territory, and that today's bounce may have been imminent.


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