Just don’t do it. Please. Just don’t mix business with politics.
Option trades are so powerful in the way that they allow you to have a high probability of profit and returns unmatched by any buy and hope strategy.
Nike learned this expensive lesson yesterday as its market cap dropped by $3.75 billion after releasing its newest ad campaign. The phrase “Believe in something. Even if it means sacrificing everything,” seemingly fit the public’s reaction to the announcement as well as reaction in NKE’s share price.
NKE’s share price dropped by more than 3 percent on Tuesday to $79.60.
If you believe this is only the beginning of the unraveling of the apparel giant, then maybe you might want to consider a bearish trade.
By selling the 82.5 Call and buying the 85 Call, you would take in a credit of $74 and risk $176, yet have a 69 percent probability of this trade being profitable by the October 19 expiration.
These figures lead to a potential max return on capital of 42 percent in just 44 days. With the current price at $79.60, the breakeven on this trade is at $83.24, or 4.5 percent above the current price.
Or maybe you feel that NKE will be able to tie up their loose ends and race back to the front of the pack and want to make a bullish trade.
By selling the 77.5 Put and buying the 75 Put you’re taking in a credit of $75 and risking $175 with a 63 percent probability of profit. The breakeven price is $76.75, which is 3.5 percent below the current price.
Option trades are so powerful in the way that they allow you to have a high probability of profit and returns unmatched by any buy and hope strategy.
Now if Nike can only figure out a less polarizing ad campaign…
Christopher M. Uhl, CMA, MOSM
10minutestocktrader.com
Email: chris@10minutestocktrader.com
Twitter: @10minutetrading
Instagram: @10minutetrading
