This NKE Calendar Put Spread Could Turn 367% Profit
Bearish play with a target stock price of $70
Strategy has +367% upside potential and 34% undervalued
Strategy: Long NKE Calendar Put Spread | |
Sell 16-Aug-24 70 Put | 1.11 |
Buy 30-Aug-24 70 Put | 1.44 |
Debit: | $0.33 |
Option Profit Calculator Results for NKE Calendar Spread at 16-Aug-24 Expiration
In this scenario, the optimal stock price for the option strategy would be $70.00 on the date of the first expiration, August 16, 2024. This is equal to the strike price of the options in the spread. Since NKE is in a technical downtrend currently, and the strikes are below the current stock price of $71.57, the spread is taking advantage of the stock's downward momentum. If the stock price is $70.00 at expiration, we can benefit from the 16-Aug-24 put, which we sold, expiring worthless, and the option that we are long, the 30-Aug-24 put, will still have time premium built in.
Since we do now know what the exact implied volatility will be on August 16, we can use our historical data to make an educated estimate to help us calculate the value of the 30-Aug-24 option. Applying the median historical implied volatility of 25.6 from similar options, the theoretical value of the put is 1.54 at the date of the 16-Aug-24 expiration. Using the above assumptions gives us a potential upside of +367% for this calendar spread.
NKE Calendar Spread Value vs. Market Price
According to Market Chameleon estimated value, NKE Calendar Spread is trading at a 34% discount to historical benchmark.
If we use historical data to measure how similar spreads in NKE were priced in the market, the 4-year average price was 0.50, with a high mark of 1.08 and a low of 0.14.
Currently, the calendar put spread is bid at 0.26 and offered at 0.33. The midpoint of the spread is 0.30.
If we use 0.50 as our historical fair value benchmark, the current market ask price is at a 34% discount, while the current market midpoint represents a 41% discount.
Current Price | Historical Values of Similar Spreads | ||||
Bid | Ask | Midpoint | Average | High | Low |
0.26 | 0.33 | 0.30 | 0.50 | 1.08 | 0.14 |
Takeaway
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