Thursday, September 24, 2015

NKE Analysis

Update 11/13/2015: The profit on my position reached 52% of its maximum potential and I excited to avoid further time risk.

Shares rose by 7.2% over 50 days, or a +53% annual rate. The options position produced a 60.0% yield on debit, for a +438% annual rate.

The athletic apparel and equipment maker NIKE Inc. (NKE), headquartered in Washington County outside of Beaverton, Oregon, publishes earnings on Thursday after the closing bell.

[NKE in Wikipedia]


I shall use the NOV series of options, which trades for the last time 57 days hence, on Nov. 20.


Click on chart to enlarge.
NKE at 10:20 a.m. New York time, 90 days 2-hour bars
Implied volatility stands at 31.6%, which is 1.3 times the VIX, a measure of volatility of the S&P 500 index. NKE’s volatility stands in the 91st percentile of its annual range.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

The position covers all of the maximum post-earnings movement range and the chart range as well, while leaving a small portion of the one standard deviation range beyond the profit zone at both top and bottom.

Iron condor, short the $125 calls and long the $130 calls,
short the $100 puts and long the $95 puts,
sold for a credit and expiring Nov. 21.
Probability of expiring out-of-the-money


The premium is $1.12, which is 22% of the width of the position’s wings.The stock at the time of purchase was priced at $113.86.

The risk/reward ratio is 3.5:1.

The zone of profit in the proposed trade covers a $12.50 move either way. The biggest immediate move after each of the past four earnings announcements was $9.75, and the average was $5.04.

Decision for My Account

 I've opened an iron condor on NKE as described above.

-- Tim Bovee, Portland, Oregon, Sept. 24, 2015


My volatility trading rules can be read here.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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