By Paul Price of Market Shadows
Sneaking Up on a Nike Position
Market Shadows Virtual Put Writing Portfolio sold two contracts of the Nike (NKE) January 2016, $70 puts this morning.
Nike has sensational historical metrics.
The stock had declined from $80.26 but it didn’t yet meet my deep value criteria at this morning’s quote of $72.14 per share.
Selling 2-year puts, we received $9.85 in premium per share, leaving us committed to purchase 200 shares of NKE at a net ‘if exercised’ price at a cheaper $60.15 per share ($70 strike – $9.85 put premium).
Our maximum profit would occur if NKE remains above $70 through the January 15, 2016 expiration date. The put options would then expire worthless. The $1,970 received up front would be ours without buying any shares.
If NKE closes below $70 on Jan. 15, 2016, we’ll be forced to buy shares at a net $60.15, a price not seen in almost nine months.
Nike has proven to be a reliable growth company. Estimates for FY 2014 and 2015 (fiscal years end May 31) now run $2.99 and $3.50. Nike pays a 21-cent quarterly dividend. Nike’s annual payouts have risen in each calendar year since 2003.
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