Smart Investor: 4 options strategies to enhance your Nike investments post-earnings

Navigating Nike's volatility with options strategies

With Nike entering a period of uncertainty following its earnings report and leadership transition, the stock’s recent movements present various possibilities for investors with different outlooks. Whether one remains optimistic about the company's long-term prospects or harbors concerns about its immediate future, options strategies offer flexibility in navigating such volatility. By using options, investors can position themselves for a range of potential outcomes—whether it’s acquiring shares at a preferred price, generating additional income, or seeking protection against further downside. The following strategies outline ways in which options can be used to align with varying market expectations and investment goals.

Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

Long call (LEAPS) strategy: January 2026 call, $65 strike

A long call option, specifically a LEAPS (long-term equity anticipation security) contract, allows investors to control 100 shares of Nike with a significantly smaller upfront investment than purchasing the stock outright. LEAPS are simply options with expiration dates far into the future—usually one year or more—offering investors a longer time horizon to capitalize on potential price movements.

In this case, the investor is buying a call option with a strike price of $65, expiring in January 2026. The cost to open this position is $2,320.

• Max risk: $2,320 (the premium paid for the option)
• Max profit: Unlimited (as the stock can rise indefinitely)
• Break-even price: $88.20 (strike price + premium paid)

This option has a delta of 0.8261, meaning that for every $1 move in Nike's stock price, the option’s price will move by approximately $0.83. For example, if Nike's stock rises by $10, the option price would increase by $8.26, bringing the option’s value from $23.20 to $31.46. However, this works both ways: if the stock price falls, the option price will decrease accordingly.

Similarly, if you have a long-term bearish outlook on Nike, you could buy a LEAPS put option. A LEAPS put would allow you to capitalize on a downtrending stock by increasing in value as the stock price declines.

This strategy is suitable for investors who are bullish on Nike's long-term prospects but want to use leverage to increase potential returns. By using this LEAPS call, investors can participate in Nike's upside while limiting their maximum risk to the premium paid.

Covered call strategy: November 2024 call, $87 strike

In a covered call, you sell a call option on stock you already own. This strategy generates income from the premium received, while limiting the upside if the stock rises above the strike price. In this case, you sell a call with a strike price of $87, expiring on November 1, 2024, and receive a premium of $0.90 per share (or $90 total for 100 shares).

• Premium received: $0.90 per share ($90 total for 100 shares)
• Max profit: $90 (premium received) + any stock gains up to the strike price of $87.
• Break-even price: $87.90 (strike price + premium received)
• Max risk: The stock can fall, but the premium received provides a small buffer.

Yield on investment:

Though $0.90 per share may not seem like much, it’s more than 1% of Nike’s current stock price of around $83, earned in less than a month. If you could repeat this strategy every month, that’s over 12% in annualized extra income—significantly boosting your returns.

Strategy suitability:

This strategy is ideal for investors who are neutral to moderately bullish on Nike. It provides additional income on your holdings and offers a slight cushion in case of price drops, though it does limit upside if the stock rallies above $87.

Selling an in-the-money put to acquire stock at a discount: October 2024 put, $85 strike

For investors who see Nike's current stock price drop as an opportunity to buy shares at a lower price, selling an in-the-money put option can be a strategic approach. In this case, selling an $85 strike put, expiring on October 4, 2024, can help you acquire shares at a discount compared to the current market price.

• Premium received: $2.00 per share ($200 total for 100 shares)
• Break-even price: $83.00 (strike price of $85 minus the premium received of $2.00)
• Max profit: $200 (premium received)
• Max risk: The stock could drop further, and you'd be obligated to buy 100 shares at $85, but with the premium collected, your effective purchase price is $83.00.

How this strategy works:

By selling this put, you’re obligating yourself to buy Nike stock if it falls below $85 by expiration. In return, you collect a $200 premium immediately, which lowers your effective purchase price to $83.00—slightly below Nike’s current price of $83.28. This provides two possible outcomes:

1. Stock stays above $85: If Nike’s stock price remains above $85 by October 4, the put option expires worthless, and you keep the $200 premium as profit.
2. Stock falls below $85: If Nike falls below $85, you will be obligated to purchase the stock at that price. However, factoring in the premium received, your effective cost will be $83.00—giving you the opportunity to acquire the shares at a discount.

Why it can be profitable:

• Compared to buying stock directly: Instead of purchasing Nike shares outright at $83.28, selling this put lets you potentially acquire the stock for an effective price of $83.00, plus you keep the premium if the stock price doesn’t fall below $85.
• Generate income: Even if the stock doesn't drop below $85, you keep the $200 premium, providing a return of over 2% on the put in just a short time frame.

Strategy suitability:

This strategy is ideal for investors who want to acquire Nike shares at a lower price but are also comfortable receiving some income (via the premium) while waiting for the stock to drop. It's a more strategic way to build a position at a potential discount, while also earning a premium that boosts overall returns.

Collar strategy: January 2025 call, $90 strike / put, $70 strike

The collar strategy is a conservative options strategy designed to protect investors who already own shares of Nike but are uncertain about future price movements. It involves selling a call and buying a put simultaneously, providing downside protection while limiting upside gains. In this example, the investor sells a $90 strike call and buys a $70 strike put, both expiring on January 17, 2025.

• Premium received: $1.82 per share ($182 total for 100 shares)
• Protection level: Downside protection starts below the $70 strike price (thanks to the put option).
• Max profit: $7182 (based on the upside being capped at the $90 strike price of the call sold).
• Max risk: Your downside is protected starting at $70, and while the strategy window shows "infinity" risk, that's because it doesn’t account for the Nike shares you already own. If you hold 100 shares for each contract, your risk is capped.

How this strategy works:

• Stock appreciation limited at $90: If Nike’s stock price rises above $90 by expiration, your upside is capped. You’d be forced to sell your shares at $90, but you still keep the premium received.
• Downside protection at $70: If Nike’s stock falls below $70, the put option starts to provide protection. You have the right to sell the stock at $70, limiting any further downside.
• Neutral impact: In this case, the premium collected from selling the call ($2.75) is larger than the premium paid for the put ($0.99), meaning you get "free" protection with a net credit of $182.

Why it can be profitable:

• Free downside protection: The net credit from this trade ($182) effectively provides you with cost-free downside protection. You collect the premium for the call, which more than covers the cost of buying the put, giving you a safety net without any out-of-pocket cost.
• Upside is capped: While you have protection on the downside, your upside is capped at $90. This is suitable for investors who are comfortable with limited gains while ensuring protection against major declines.

Strategy suitability:

This strategy is ideal for investors who already own Nike stock and are looking for downside protection without paying additional premiums. It’s a great fit for those who are uncertain about near-term price movements but want to maintain their position with a buffer against losses, while being open to selling their shares at a higher price.

Conclusion