Why struggling stocks like Nike and Netflix are drawing call option interest
With the market breaking out to new all-time highs, I do wonder if the fallen former leaders of years past are ready to get back in gear and join the rally.
However, instead of buying these stocks outright, I am more interested in buying call options as a way to get bullish exposure. Let me explain why ...
When a stock has fallen 30%, 40%, or even 50% off its highs, buying the stock outright means you're tying up serious capital and taking on full downside risk if the bottom isn't in. Buying calls, on the other hand, lets you define exactly what you're willing to lose, while still giving you meaningful upside exposure if the turnaround plays out.
For example, a trader who buys a 6-12 month at-the-money call option might risk $500-$1,500 versus paying $3,000 to $15,000 to buy the stock. That's the beauty of options ... you risk less, and you have very similar upside exposure.
With that in mind, here are five former market leaders I'm watching for exactly this kind of setup ...
5 Fallen Market Leaders I'm Watching
Palantir (PLTR)
PLTR has been one of the most talked-about AI names over the last two years, and after a massive run, the stock has pulled back sharply from a high above 200 in November to a low of 120 just two weeks ago.
And while the AI and government data analytics story is still intact, the stock price has been hit hard along with the software sector. That makes it a name where I'd rather define my risk with calls than buy the stock, just in case the stock bleeding hasn't yet stopped.
With that in mind, here is a trade I might look at:
Buy the PLTR January 145 Call (exp. 1/15/2027) for $30
In this case, the most I can lose on the trade is the $3,000 of premium I paid for the calls as opposed to shelling out $45,000 for 100 shares of the stock.
Nike (NKE)
NKE has been in a prolonged downtrend as the brand has struggled with inventory issues, slowing China sales, and a leadership transition. But this is one of the most durable consumer brands on the planet, and at some point, the market may start pricing in a recovery. When it does, I'd rather already be in position with calls than chase the stock higher.
Here is a trade that has a good risk/reward to a stock rebound:
Buy the NKE January 47.5 Call (exp. 1/15/2027) for $6
In this case, the most I can lose on this trade is $600 per call purchased, which is a deep discount in comparison to paying $4,700 for a buy of 100 shares.
Netflix (NFLX)
NFLX has been struggling in the last year as the stock has fallen from a high of 130 to a post-earnings low this week of 95. And while the stock has struggled, the subscriber growth story, the ad-supported tier rollout, and the live sports push give the bulls plenty of reasons to believe this is a turnaround worth betting on. So, if I wanted bullish exposure to NFLX, I might target this trade:
Buy the NFLX January 95 Call (exp. 1/15/2027) for $13
Chipotle (CMG)
CMG has seen its valuation compress significantly after a long stretch as a market darling. The fundamentals of the business - unit economics, same-store sales, the international growth runway - remain compelling. But the stock has been punished. Rather than buy it here and sit through potential further weakness, a well-structured call position lets me participate in the recovery without overpaying for a potentially still-expensive stock.
Buy the CMG January 35 Call (exp. 1/15/2027) $6
DraftKings (DKNG)
DKNG is a name that gets a lot of attention - and a lot of hate. The legal sports betting market continues to grow, the promotional spending wars are easing, and the path to profitability is becoming clearer. That being said, the stock has come under heavy pressure as competition from Polymarket and others has entered the market.
With those risks in mind, this is how I might get bullish exposure:
Buy the DKNG January 23 Call (exp. 1/15/2027) $5
Stepping back, I'm not in a rush to add any of these stocks to my portfolio today, as I mostly buy the best-performing stocks. But if option activity starts to heat up in any of these names, or the charts begin to show signs of stabilization, calls give me the most cost-efficient way to play a potential turnaround ... with the risk clearly defined from the start.
