Nike options signal points to further downside risk for shares
The 10-day call/put volume ratio has breached the 90th percentile, a pattern that has historically preceded an average monthly decline of 5.8 per cent.
Nike Inc shares are flashing a historically bearish signal in options trading, with the 10-day call/put volume ratio exceeding the 90th percentile of readings from the past year. The ratio currently stands at 4.77 across the International Securities Exchange, Cboe Options Exchange, and NASDAQ OMX PHLX. This marks the 11th time in the last three years that the equity's 10-day buy-to-open put/call ratio has crossed over 1.0 and hit the 90th percentile.
According to Schaeffer's Senior Quantitative Analyst Rocky White, the stock has declined following such signals in the past. Historical data indicates that NKE was lower one month later 64 per cent of the time after these signals, with an average loss of 5.8 per cent. A drop of that magnitude from the current price of $44.33 would send the stock down to $41.76.
The athletic apparel retailer has struggled to regain footing since a 15.5 per cent post-earnings bear gap on April 1. Despite coming off a 6.6 per cent weekly win, the stock remains vulnerable to testing its May 18 low of $41.35. The current projection places the potential decline just above that 10-year low.
Year to date, Nike shares are down 30.4 per cent. The stock is currently trading at $44.33 and remains vulnerable to testing its May 18 low of $41.35. The options data suggests that the recent weekly gains may not be sufficient to counter the broader bearish sentiment reflected in the derivatives market.
The recurrence of this signal highlights persistent pressure on the equity. While the stock has experienced short-term volatility, the structural weakness indicated by the options flow suggests that investors should remain cautious. The historical precedent implies that the path of least resistance remains to the downside in the near term.
