Nike Sees Put Options Climb as Stock Trades at Lowest Since September
$Nike(NKE.US$ put options are popping as speculators, investors and traders pile into securities that hedge against a price slump at a time when the stock is trading at the lowest level since September.
Investor sentiment turned sour on the stock after the athletic footwear, apparel, equipment and accessories company painted a gloomier outlook, overshadowing better-than-expected earnings and revenue for its fiscal 2024 third quarter ended Feb. 29.
Volume on put options, which give the holders the right to sell the stock at a specified price reached more than 178,570 contracts as of 12:11 p.m. in New York Friday, almost double that of call options, which are contracts give the holders the right to buy Nike shares, data compiled by moomoo show.
Even deep pocketed options buyers are jumping in. At exactly 9:31:51 a.m. New York, a block trade was posted with the buyer paying a $1.57 million premium for put options that give the holder the right to sell 300,000 Nike shares by the end of this trading day at $98 each. At that exact time, another block trade for long $97 put options was posted with the premium of $1.29 million also for 300,000 shares, expiring today. The two are the biggest block trades recorded so far Friday.
Shares slumped as the company's financial results fail to impress analysts. According to a Reuters report, at least 12 brokerages cut their price target on the stock, dragging down the median target to $116, from $126 in December.
Zero days to expiration (0DTE) options have grown more popular among investors and that's also playing out in Nike. The most popular options linked to the stock on Friday are those giving the holder the right to sell Nike shares at $97 each, with 5,940 contracts traded so far. Volume has soared from just over 1,000 put options two days ago.
During the earnings call with analysts, Nike Chief Financial Officer Matt Friend said revenue in the first half of the fiscal year is expected to be down single digits, reflecting "near-term headwinds from lifecycle management of key product franchises, more than offsetting the scaling of new products," according to the unofficial transcript posted on the company's website.
"We are confident in our product pipeline for fiscal '25 and the momentum we build throughout the year," Friend said.
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Moomoo Senior News and Community Manager
Former editor at Bloomberg, then Lazard Asset Management. Posts aren’t investment advice. Views are just mine.
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tanvi : I don't understand the logic behind why those buyers bought put at $97 and $98 while also paying the premium of 1.57m and 1.29m, respectively. The market was selling at $92.78.
What were they trying to gain from the put option?
Luzi Ann SantosOP tanvi: As the story says, puts can be used as a hedge against a price slump because the holder can sell the shares at that strike price, even if Nike shares are trading below that. But of course, there’s a cost to buy that protection just as you would pay for insurance to help you when things go wrong. That’s what’s called the premium.
Others also use these securities for speculation. It’s hard to know exactly what the motivation in this case is, unless you’re the person behind the trade. But it’s always interesting to know how big players are positioning, regardless whether you want to follow them or make a contrarian move.