Puts were a popular choice on NIKE, Inc. (NKE: sentiment, chart, options) last Friday, with nearly 12,000 of these bearishly oriented options crossing the tape. The day's hefty dose of put volume amounted to approximately eight times the equity's expected activity of 1,541 contracts. The back-month March 60 put was the center of attention, with 7,815 contracts changing hands.
The International Securities Exchange (ISE) confirms that there was a bearish bias to Friday's option volume, as speculators on this exchange bought to open 2,142 NKE puts and just 67 calls during the course of the session. The stock's single-day ISE put/call volume ratio of 31.97 reveals that approximately 32 times more bullish bets than bearish were purchased.
In fact, NKE's 10-day ISE put/call volume ratio has ballooned to 2.67, as puts bought to open have nearly tripled their call counterparts in recent weeks. This ratio arrives in the 86th annual percentile, revealing that pessimistically oriented options have been in greater demand than usual.
In the same vein, NKE's Schaeffer's put/call open interest ratio (SOIR) weighed in today at 1.38, with puts comfortably outnumbering calls among options set to expire within three months. This SOIR ranks higher than 98% of other such readings taken during the past year, indicating that short-term speculators have been more bearishly aligned only 2% of the time.
Conversely, short interest on NKE has backpedaled lately. Short interest on the shares fell by 2.1% during the most recent reporting period, and now accounts for 3.2% of the equity's float. While put players are loading up on pessimistic positions, short sellers appear to be hitting the exits at a fairly consistent pace.
Meanwhile, taking a closer look at last Friday's option volume, a fair amount of activity was centered around NKE's March 60 put, which traded volume of 7,815 contracts, and the stock's March 62.50 put, where 3,771 contracts crossed the tape. Open interest rose at both strikes over the weekend, confirming that new positions were opened here on Friday.
Right around midday, a block of 2,780 contracts traded on NKE's March 60 put at $1.74, near the bid price -- suggesting they were sold. Simultaneously, a block of 1,390 contracts changed hands near the ask price on NKE's March 62.50 put, indicating they were most likely purchased. With the number of sold calls outpacing the number of purchased calls by exactly two to one, this appears to be a ratio put spread on the security.
By purchasing puts at the March 62.50 strike, the trader is betting on NKE to backpedal prior to March expiration. However, by selling twice as many puts at the March 60 strike, the speculator most likely expects NKE to hold steady above this round-number level during the short term. Otherwise, since only half of his sold puts are hedged by purchased puts, he would risk assignment on a dip below $60.
However, with NKE trading at $61.58 at the time the spread was opened, the trader's profit potential on this trade is rather severely limited -- the shares don't have too much more downside mobility before they'll be dipping below the sold strike.
From a technical perspective, the recent crop of put buyers are trying to capitalize on NKE's retreat from stubborn resistance in the $66 region. Since peaking at $66.62 on Dec. 31, 2009, the shares have given up more than 7% of their value. In light of this performance, the recent dip in short interest might have been the result of profit-taking by the bears, rather than a rush to cover.
Amid its recent technical swoon, NKE has breached support at its 50-day and 120-day moving averages. Now, these trendlines appear to have switched roles, capping the equity's rally attempts in recent sessions. Additionally, the formerly supportive $62 neighborhood has also been frustrating NKE's rebound efforts during the past couple of sessions.
However, there's a solid case to be made for support at $60, which Friday's ratio spread player most likely had in mind. The $60 region was a former area of resistance for NKE, but it could now act as a solid round-number floor to contain the equity's pullback.
Meanwhile, existing support from NKE's 32-week moving average is rising into the area, which could provide an additional technical lift. This trendline hasn't been breached on a weekly closing basis since March 2009.
In fact, with the shares so tightly pinned between support and resistance, it's not outside the realm of possibility that NKE could remain range-bound during the near term. Opportunistic option players might want to keep an eye on the situation as expiration approaches, as the stock could be a candidate for low-volatility strategies -- such as the short strangle, or the lower-risk iron condor.
Discuss this article:
Post your own comment
More articles:
Apollo Group, Inc. (APOL) and Yamana Gold Inc. (AUY) have become favorite targets of options traders lately. Amid increasing speculation about pending legislation, put volume has ramped up substantially on struggling APOL. Meanwhile, recent gains for gold futures have sparked an interest in bullish bets on AUY. read more...
Option players on Monday set their sights on financial firms Goldman Sachs Group, Inc. (GS) and KKR Financial Holdings LLC (KFN). Bullish bets were in favor on GS, but a recent rise in short interest casts new light on this call-heavy option volume. Meanwhile, KFN garnered a heavy dose of put buying as the stock deepened a recent pullback. read more...
Speculative investors placed new bets on Starwood Hotels & Resorts Worldwide, Inc. (HOT) and VMware, Inc. (VMW) last Friday, with option volume ramping up beyond the expected levels for both stocks. HOT racked up a heavy dose of put activity, continuing a recently bearish trend for the stock, while VMW garnered attention from call players amid its longer-term uptrend. read more...
Traders on Thursday turned their attention to AK Steel Holding Corporation (AKS) and Baidu.com, Inc. (BIDU). Puts were the options of choice on AKS, in keeping with a recent theme, while BIDU was singled out for a bullish call spread. read more...
Fundamental woes are adding up fast lately for Research In Motion Limited (RIMM). The BlackBerry parent has been butting heads all month long with regulators in India, Saudia Arabia, and the United Arab Emirates -- to name just a few nations -- regarding data security concerns. Meanwhile, RIMM's much-hyped Torch smartphone has debuted to a generally tepid reception, with the new gadget generating only a fraction of the excitement seen for new iPhone launches. read more...
Oil issues were in play on Tuesday, with options traders setting their sights on BP plc (BP) and Cameron International Corporation (CAM). While the British oil major garnered a wave of attention from put buyers, speculators opted for bullishly oriented options on CAM. read more...
Biotech stocks were in focus on Friday, with options players placing new bets on InterMune, Inc. (ITMN) and VIVUS, Inc. (VVUS). The two stocks have something in common -- both suffered heavy losses earlier this year on the heels of negative news for their experimental drugs. ITMN fell off a cliff in May after the Food and Drug Administration (FDA) rejected its lung treatment, while VVUS was pummeled in July after an FDA panel voted to deny approval to its obesity drug. However, despite these technical and fundamental similarities, speculators are taking distinctly different tacks with ITMN and VVUS. read more...
Biotech stocks were in focus on Thursday, with both Human Genome Sciences (HGSI) and Jazz Pharmaceuticals, Inc. (JAZZ) garnering notable put activity on the International Securities Exchange (ISE). With both stocks currently sandwiched between technical support and resistance, it seems that speculators are increasingly placing their bets on a bearish breakdown. read more...
Traders are taking sides on Clean Energy Fuels Corp. (CLNE) and Star Scientific, Inc. (CIGX). Calls were popular on CLNE yesterday, while puts were the options of choice on CIGX -- extending a recent trend for both securities. read more...
EMC Corporation (EMC) and Visa Inc. (V) were both targeted by put buyers on Tuesday -- and, in fact, buy-to-open put volume is fast approaching peak levels on both equities. Since both EMC and V have established reputations as Wall Street favorites, this skeptically skewed option volume seems worth a closer look. read more...
working... 
