FL Hedged Options Strategy

15 дек. 2022 г.

Everyone knows Foot Locker. While athletic footwear sales were down during the pandemic, they're back with a vengeance as work-from-home and the athleisure aesthetic have only grown in popularity (estimated to be a $77 billion business by 2025.) To consumers, sneakers hit many of these elements: practical necessity, recreation and exercise, personal style, luxury fashion, status symbol, political statement. "Sneakerheads" will wait hours in line for new shoe releases and Foot Locker is positioned as the top destination for launch parties. It also partners with official sports teams to sell licensed merchandise, and recently acquired Tokyo-based specialty footwear store Atmos as well as Warehouse Shoes (WSS). New CEO Mary Dillon has also promised to help the company grow its e-commerce division, something she did for Ulta quite successfully.

Technically, it looks like a rising wedge is forming... but how can investors be certain share prices will fall with so much talk of a Santa Claus rally into the holiday season and stocks rising from the Fed's confirmation of a gentler rate hike this week?

Here's an example of a hedged options strategy that can make up to 17% -- capped at slightly above the top of the rising wedge. In exchange, it allows FL room to fall up to 38% before losing any of the investment.

Buy 1 $35 call
Sell 1 $42.5 call
Sell 2 $22.5 puts
Exp 1/19/24

Capital requirement: $4473