Reflecting on my NKE options trades. What I did right. What I did wrong. What I am going to do next.
NKE is the symbol for Nike. It is the largest athletic footwear and apparel brand in the world. It designs, develops, and markets athletic apparel, footwear, equipment, and accessories in six major categories: running, basketball, soccer, training, sportswear, and Jordan.
I like and buy Nike products. It is also a globally recognized brand.
Evaluating NKE
At the beginning of 2022, I attended a course called Options Millionaire Intensive (affiliate link). OMI is a 3-day live / virtual bootcamp. I learnt some interesting investing concepts and strategies. One of them is a checklist for evaluating whether a company is good.
- Operating cashflow (OCF) of a good company should be consistently positive. A bonus if it is growing.
- Net profit margin should be positive. 10% and more to be considered good.
- Interest coverage ratio should be positive. The larger the number the better. Nil is also good. It means the company has no loans.
- The current year Price/Earning ratio (PE) should be lower than the 5-yr PE
- The current year Earning Per Share (EPS) should be higher than the 5-yr EPS
- The Value line should be higher than the current share price. This means that the company shares could be trading at a discount.
Applying the OMI Checklist to NKE
I’m starting with the OMI checklist this time before planning my strategy and trades.
The OCF of a good company should be consistently positive. A bonus if it is growing.
- NKE’s operating cashflow is positive and growing. TTM OCF = 7,170 million USD.
- NKE’s net profit margin % is >10% for the last couple of years. TTM is 13.32%. A very comfortable margin.
- NKE has no loans.
- NKE’s current PE is 32.19 while 5-year PE is 46.32. This is good. It means NKE is cheaper now.
- The current EPS is $3.81
- The value line is 46.32 x 3.81 = $176.48. The value line is currently higher than share price. A sign that the market price is cheaper than average.
NKE passed the OMI checklist and the current share price is below the value line.
NKE Options : Poor Man’s Calls
If I buy the shares, I will need around $13,200 of capital. The alternative is to buy a LEAP call. Learn more about LEAPs with Greg.
My plan is to buy a LEAP call option in-the-money if the implied volatility percentile is around 30%. This will be followed by selling shorter term call options with high probability of expiring worthless. The cost of the LEAP should be around 15% of the share price.
15 Mar 2022 – bought 1 call option with strike at $115 at a cost $2,450 expiring 19 Jan 2024.
15 Mar 2022 – sold 1 call option with strike at $135 for a premium of $161 expiring 14 April 2022.
The total cost for both NKE options is $2,450-$160 = $2,289.
I closed both trades together on 22 March and collected $3,000. Profit is $3,000-$2,289 = $711. This was a successful trade in my opinion and I plan to repeat the strategy.
22 Mar 2022 – bought 1 call option with strike at $135 at a cost of $2,370 expiring 19 Jan 2024.
But one of the 4 call options I sold next didn’t go well and I made a total loss of (-$172.28). The loss affected me and I made a mistake of buying another LEAP call that is more expensive.
19 Apr 2022 – bought 1 call option with strike at $135 at a cost of $2,500 expiring 19 Jan 2024.
I now have 2 LEAP call options but NKE share price started to decline from there.
June 2022
I will still continue to try to sell call options to collect some income. But I need to improve my options picks and analyzing market trends.
The data I used for evaluation are sourced from Firstrade.com and Moomoo (affiliate link). I have trading accounts with them and it includes access to relevant company and market information.
