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January 30, 2013  Wed 2:45 AM CT

NKE: SEE CHART GET CHAIN FIND STRATEGIES
Nike is taking a breather after running higher for more than a month, but traders are betting that shares will resume their climb in the next few weeks.

More than 5,500 February 55 calls traded in a bullish pattern yesterday, with the largest blocks bought for $0.20, according to optionMONSTER's Heat Seeker tracking system. The volume was 10 times higher than the strike's open interest of 553 contracts at the beginning of the day, indicating new activity.

NKE fell 1.06 percent yesterday to close at $53.92, continuing to pull back from a nine-month intraday high of $55.57 reached last Friday. The athletic footwear and apparel giant gapped up from below $50 after its last earnings report on Dec. 20 and has been trending higher since. The company is scheduled to release its next quarterly results on March 21.

Yesterday's long calls, which lock in the price where traders can buy the stock, are looking for NKE to close above $55 at expiration on Feb. 15. The options could be sold earlier at a profit with any rally before then, but they will dwindle in value if the shares don't move. (See our Education section)

The call buying pushed total option volume in NKE to 14,524 contracts, more than double its daily average of 7,097 in the last month. Calls at all strikes outnumbered puts by nearly 2 to 1.
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Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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