Nike has bounced after a big drop, and one trader is positioning for the next leg down.
optionMONSTER's Depth Charge monitoring program detected the purchase of 5,000 October 85 puts for $0.91 and the sale of 10,000 October 70 puts for $0.13. Volume was more than triple open interest at both strikes.
The trade resulted in a cost of $0.65 and will earn a maximum profit of 2,208 percent if the shoemaker closes at $70 on expiration. Gains will erode below that level and turn to losses under $55.
It's known as a ratio spread because twice as many contracts were sold as were purchased. That increases leverage, but also creates the risk of losses if the shares move too far in the hoped-for direction. (See our Education Section .)
NKE rose 1.56 percent to $96.26 on Friday. It plunged from over $108 to about $85 in June after a disastrous earnings report, and has been grinding higher since then. The shares are now back around the same level where they traded immediately before the news, and are also pushing against their 50-day moving average. Those patterns could make some chart watchers expect another push to the downside.
Alternately, the put spread could be the work of an investor who bought shares at the lows after the earnings report and now wants to hedge against a drop below those levels.
Overall option volume was 5 times greater than average in the session, with puts accounting for more than three-quarters of the total.
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