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Am I the only one around here who's a bit tired of everything being about technology stocks and metals? There are other ideas out there. Here’s one.
Especially at a time like this, with markets in such a state of indecision — unless they are crushing a whole group of stocks like the SaaS names — it's a good time to look for collar-able stocks. I think Nike (NKE) is one.
The narrative for Nike is currently a story of a "wholesale reset" and a return to its performance roots. After years of relying on lifestyle retro models that eventually led to inventory gluts, the company is attempting to reclaim its status as a leader in technical sportswear.
A new 15% global import tariff on overseas-made products is the primary margin concern. We’ll learn more in a few weeks when NKE reports.
On the positive side, Nike enters the year in its cleanest inventory position in a few years. That allows the company to move away from the aggressive discounting of 2024 and 2025 and focus on full-price selling of new innovations. That includes the launch of the "Nike Mind" footwear line and the use of generative AI to shorten product development cycles.
Greater China remains a challenging environment due to soft traffic and promotional intensity, signs of stabilization in wholesale revenue are emerging as a key "recovery logic" for the stock. And it is this sort of tightrope NKE is walking that makes a collar a strong consideration. We get the upside, most of it anyway. But we draw a line in the sand at the start of the trade.
NKE’s fundamental ratios were wrecked in recent years. At 40x forward earnings, it is a comeback story to knock that figure way down. The 1.27x beta in the last five years speaks to a company that has been put through the proverbial ringer.
That is why price returns on a trailing basis look like this. And that’s why a collar makes sense instead of hoping to pick a bottom.
The chart I’m showing below is a weekly, since the collar example that follows it goes out just over 12 months. So a daily chart won’t be as relevant.
If NKE Does the Swoosh Thing Again, This Collar Will Work Nicely
The chart of NKE is pretty boring, actually. Unless you are a contrarian like me. From a 2021 high of $170 down to $64 currently. That smells like a second shot at riding a NKE stock price “swoosh.”
NKE’s ROAR score reflects the current state of malaise for the stock. It has been everywhere recently. And yet, nowhere. This highlights the nature of technical analysis, as told through the story of the ROAR score for any stock or exchange-traded fund (ETF). There are moments in which the price, and therefore the odds of a big move up or down, will be full of “static.”
That’s why just looking at the colored score on any particular day as a buy and sell signal is not the primary use case. What this does say about NKE, is that currently, it is not in a high-risk zone. The score is 60, so in the neutral-risk range. That doesn’t mean no risk, but average risk. NKE has been much riskier in the past.
I show a range of collars below, all out to 3/19/27. And all with a put strike price of $65. The variable here is the call strike. The more upside sought, the lower the call premium taken in, so the higher the break even value. That’s the tradeoff with collars, always.
I’ve been sniffing around for collars like this one. Twelve months, 29% upside, 9% downside, as in that first example above. That translates to a protected try at a comeback for this blue-chip retail stock.
Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob's written research, check out ETFYourself.com.
