Nike is going nowhere

• Posted by Greg Harmon
• on May 5th, 2015

Every weekend I review over 1000 charts to come up with a Top 10 list to focus on for the week. But invariably there are always a few that do not make the list but carry some interest. One of those this week was Nike ($NKE). I wrote back in early March, prior to its last earnings report that it had an impenetrable titanium lid at 100. So naturally it blew through that following the report. But since then it has really done absolutely nothing.

Under Armour ($UA), its rival, reported April 20th about a month later and I’ll be shocked if you can see any impact in the Nike chart. Under Armour has just moved lower, but Nike just keeps moving sideways, tightening around 100.

What do you do with a stock like this? One answer is nothing. Just watch for it to show that it wither wants to move up or down and then put on a position. If you own the stock already then you can add a collar to protect against a move lower. Or, if you are savy, you look to the options market.

The consolidation in the chart tells a story, but there is more to it. The Bollinger Bands® are very tight. How tight? They have not been this tight in over 4 and a half years. This is often a signal that a big move is about to happen. But which way?

This is where the options market comes it. The weekly 100 Strike Straddle expiring in 3 days can be sold for $1.40. That suggests that market makers believe the price will stay between 98.60 and 101.40 by Friday. If you sold that Straddle, then you could use the proceeds to by a longer dated June 12 Expiry 100 Straddle. That one would cost about $4.15, but by selling the weekly Straddle, your cost is only $2.75.

To be profitable, the price by the June expiration needs to move by $2.75 more than it moves by this Friday. So if it closes at 100.50 Friday then it would need to close over 103.25 by June. But if you capped your gain in June by selling the 95/105 Strangle for $1.00, your total cost is only $1.75 and it lowers the required additional move in June by $1 to $1.75.

So, do you think the price of Nike will stay close to 100 this week and move out of these tight Bollinger Bands by June 12th?

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