Subject: Just Do It … or Not

Dear Friend,

We continue to battle the volatility of the 2022 market, but our composite average portfolio continues to be in the black. Obviously, that is a far better record than the market is experiencing. Hope you enjoy this week's trading idea.

Terry

July 2, 2022

Week 676

Just Do It … or Not

Nike (NKE) reported earnings on Monday that beat on the top and bottom lines. But many were not impressed, citing disappointing gross margin guidance, among other metrics. The stock was hit with a slew of target price downgrades, though that’s been the norm for all stocks as analysts make feeble attempts to catch up with the bear market. Nevertheless, saying analyst reactions were mixed would probably be an overstatement.

The stock reacted by crashing to a two-year low and falling 45% from its November high. Given the current market environment and the latest numbers, it’s difficult to make a bullish case for the stock over the near term. So, we won’t. That said, we’re giving plenty of room on the upside, using a call spread with the short call sitting just below the declining 20-day moving average (red line), which twice rebuffed rally attempts in June. The 50-day moving average (blue line) is also in play as potential resistance.

If you agree that NKE will continue its overall downtrend, consider the following trade that relies on the stock staying below $110 (green line) through expiration in seven weeks.

Buy to Open NKE 19Aug 115 call (NKE220819C115)
Sell to Open NKE 19Aug 110 call (NKE220819C110) for a credit of $1.05 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when NKE was trading at $101. Unless the stock drops quickly from here, you should be able to get close to this amount.

Your commission on this trade should be no more than $1.30 per spread. Each spread would then yield $103.70. This trade reduces your buying power by $500 and makes your net investment $396.30 ($500 – $103.70) for one spread. If NKE closes below $110 on August 19, both options will expire worthless and your return on the spread would be 26% ($103.70/$396.30).

Any questions? Email Terry@terrystips.com

Did you know that the actual 10K Strategy portfolios conducted at Terry's Tips averaged gains of over 100% in 2017, 2019, and 2020? The 10K Strategy consists of calendar and diagonal spreads which benefit from the faster decay rates of the short-term puts and calls which are sold (using longer-term options as collateral). You can learn all the details on how to carry out this strategy on your own by subscribing here. Select either Monthly or Annual, click on Sign Up Now and sue the Coupon code D21M for our monthly service for only $98,or D21Y to get a full year of our service for $980 rather than our regular price of $1970, then select Apply Coupon. Why wait any longer to make this important investment in yourself?

I look forward to having you on board, and to prospering with you.

Terry

Testimonial of the Week

I am not a writer of flattering letters to advisors, so it is of some consequence in my investing history that I tell you how happy I am with your 10k Strategy. I hope to make it grow into the most significant part of my investments and eventually rule the world. I will be benevolent towards you, Terry, in appreciation for your brilliance and willingness to let former small fries like myself get in on the action. Ralph W.

Thank you again for being a part of the Terry's Tips newsletter.

Happy trading,

Terry

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Subject: Just Do It … or Not

Just Do It … or Not