Shorting NKE: part 23

Back to reality

NKE closed down 1.02 to 71.02 before falling another 16 cents after hours to finish at 70.86.

My insurance cost me 12% today against what I profited remaining short.

Going into today, on the other side of the weekly crisis of confidence, I was confronted with June 2025 month end trading.

If a spike in NKE came, I would have surmised that shorts were exiting the market.

Buying up shares because they think the downside is not worth the risk.

You see, unless something is paying 3:1 at a minimum, it really is not worth a speculator’s money.

I learned this 30 years ago while spending Thursdays calling Las Vegas gamblers: poker players mostly and getting them to lay bets on commodities. Some loved to bet against trends with wildcards (Options strategies that pay as well as a 2 or a 12 might at a Craps table). They had to pay at least 3:1, though.

But no pop came. No short squeeze. No one wanted to start the 2nd half of the year with a clean slate.

NKE traded 71.70 at the high and then fell. The low was 70.06.

With a range of c. 2% (1.64) and a rise in both volatility and the PUT:CALL ratio, I measured the gamma.

While the market was at the low, the pricing set my position as a long position.

Despite a negative Delta, the risk calculators said I was long. This is Gamma. Altering the way probabilities seem. Creating a blind spot.

For example, as a hypothetical, if you owned 500 shares of NKE today, your asset valuation dropped by over 600 dollars. That is a +500 delta risk multiplied by the change: -1.22. Minus 610 dollars.

In Options, the gamma rose so you are left staring at a larger loss (with a long delta) and a larger gain from a short, or negative, delta.

Volatility and the PUT:CALL ratio shifting significantly FORCES GAMMA to shift.

When gamma changes enough, it effects the risk of every entity in the market.

VEGA: the measure of how much an option’s price moves for every 1% change in the Implied Volatility of the underlying asset.

This is where your Borgas will come in handy.

Every day one owns an option, its value erodes by the THETA (value of time). This is where the term structure of volatility comes into play.

Buying options with terms that have lower volatilities means owning options where the VEGA is higher than the THETA. So, when volatility moves UP, the natural time erosion of the derivative is offset by the shift in volatility.

Whether the underlying market moves up or down.

You see, Shorting NKE is misleading.

It is Trading NKE. Making profits both ways.

When volatility moves enough.

To be continued…

The insurance, where I am long, showed the correct risk. Positive delta, rising volatility (VEGA).