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Hey everybody, JD here with your Rational Trader Market Analysis daily.
Let’s talk about Nike, because yesterday’s Mean Reversion Cash Machine trade did exactly what we expected it to do.
The Setup
Nike had been sitting two sigma below its mean.
Quick refresher: sigma is trader shorthand for standard deviation — a measure of how far a stock has wandered from its average price. Two standard deviations lower is a polite way of saying “this thing has been beaten up far more than normal.”
That’s the kind of setup the Mean Reversion Cash Machine trade is built for. Sell puts when a stock is stretched too far down, and you give yourself a cushion while betting on at least some reversion.
The Result
Nike reported earnings, and the trade worked like a charm. The stock didn’t need to soar; it just needed to not crater. And sure enough, the puts we sold expired safely out of the money, delivering the win.
The interesting part is that this played out even while the broader market was soft.
The Market vs. Nike
The government shutdown dominated headlines, and stocks opened lower across the board. But Nike? It traded higher.
That’s the power of mean reversion. When something is stretched two sigma below its average, it doesn’t take perfect news to snap back. All it takes is the absence of disaster. Nike had that, and the trade paid.
Looking Ahead
The takeaway isn’t just that Nike worked. It’s that this is a repeatable setup. The Mean Reversion Cash Machine will keep spitting out these opportunities as we move back into earnings season.
And speaking of earnings — buckle up. Q3 earnings season kicks off in two weeks. That’s when we’ll see this playbook really get going, because earnings create the exact conditions — stretched stocks, fat premiums — that make mean reversion trades shine.
So fasten your seat belts. Nike was just the preview.
This is JD — good luck, and I’ll see you tomorrow.
Talk soon,
JD
The Rational Trader
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