Skechers U.S.A., Inc. (SKX), Trending Stock Report

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Skechers U.S.A., Inc.(SKX) appeared on our list of compressed stocks this morning. This is interesting for more than one reason. There was a damning article in Bloomberg about Nike, Inc. (NKE) becoming “uncool”. The article explains how NKE has been intentionally giving shelf space at retailers, cutting innovation, and relying on “retro”. This has created an environment where other shoemakers, like SKX, have filled the empty void that NIKE purposely created. The “uncool” factor has gotten so bad that when a wide receiver fell during yesterday’s featured NFL game between the Chiefs and the Bengals, former NFL quarterback and star commentator Tony Romo joked about the receiver’s fancy Nike shoes saying, “I’m a Skechers guy.”

From an options trader’s perspective, the stock has a history of making big moves after a compression signal and the volatility expectations for the October 18^th expiration are relatively low. This gives us an option buying opportunity.

This Volatility Term Structure chart for SKX shows us the implied volatility for the at-the-money options for each expiration. This chart shows that options expiring on October 18^th have the lowest volatility expectations. This tells us that options expiring on October 18^th have the lowest relative prices. That is good for option buyers.

This Volatility Cone chart for SKX compares implied volatility expectations for each term to the historical volatility for that same term. The blue line shows the average historical volatility, the purple lines show each HV measure’s highest high and the lowest low over the past 3 years. You can see that the one-month term (which is the term we are interested in) is below the 3-year historical average. This confirms that the options for that term are relatively inexpensive.

This MDM graph compares the modeled expected distribution for future stock prices (the orange line) with the actual distribution of SKX’s share prices over the past 3 years (the blue histogram). You can see that the actual stock movement shows that the stock tends to make bigger moves than current options prices expect.

SKX share prices are compressed. The stock has a history of making big moves after a compression signal. Plus, the company’s shoes are getting cool enough that sports celebrities are making unsolicited comments about their products on national TV. This is an option buying opportunity.

To get the specific details and prices on today’s trade ideas, be sure to read today’s ODDS Online Daily Option Trade Idea.