The shares of retail behemoths Nike Inc (NYSE:NKE) and Lululemon Athletica Inc (NASDAQ:LULU) are both gapping lower today, after President Donald Trump imposed a 25% tariff on Mexico and Canada over the weekend, as well as a 10% levy on China.

NKE Set to Extend Losing Streak

At last glance, NKE is down 4.1% to trade at $73.76, brushing off a price-target hike from BMO to $95 from $92. The equity is looking to extend its 26.2% year-over-year deficit, and is pacing for its sixth loss in the last six trading days. Last week the security made a run at $80 for and its 126-day moving average for the first time in 2025, but was rejected amid Friday's selloff. 

Short-term options traders lean bearish. This is per the stock’s Schaeffer's put/call open interest ratio (SOIR) of 1.06, which stands in the 96th percentile of annual readings.

Options Bears Blast LULU

LULU was last seen down 2.9% at $402.07, deepening a 13.2% year-over-year deficit. The stock is poised to snap a six-day win streak, but overall has executed a nifty V-shaped rally since an Aug. 5 12-month low of $226.01. It's worth noting that its 20-day moving average looks ready to contain today's losses.

In today's options pits, 2,925 puts have crossed the tape for LULU, double the intraday average amount. Mos active is the weekly 2/7 405-strike put, where new positions are being opened.

Constellation Brands Inc (NYSE:STZ) stock is down 1.9% to trade at $177.47 at last glance, after President Donald Trump imposed a 25% tariff on goods from Mexico. The company's Mexican imports include Modelo and Corona beers, the former of which became America's top seller after beating Anheuser-Busch Inbev's (BUD) Bud Light in 2023. Piper Sandler was quick to downgrade STZ on potential tariff headwinds, lowering its rating to "neutral" from "overweight," with a price-target cut to $200 from $245.

Constellation stock has yet to recover from its early January post-earnings bear gap. The shares earlier fell to their lowest level since November 2020, and have shed 21.2% since the start of the year.

Leading up to today, Constellation stock saw more call trades than usual. The equity's 10-day call/put volume ratio of 2.57 over at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks higher than 87% of readings from the past year. An unwinding of some of this optimism could weigh on the stock further. 

In fact, within the first hour of trading, Constellation stock has already seen 4,640 puts in comparison to 4,206 calls, with overall options volume running at triple what's typically seen at this point. The weekly 2/7 175-strike call and 180-strike put are the most active contracts, with new being opened at both. 

“Turning to the charts, the first piece of good news for the bulls is since the bearish ‘outside day’ candle on Dec. 18 that signaled short-term trouble ahead -- as such candles did throughout 2024 -- the SPX is now above the high of that bearish candle day. Moreover, the index did not experience a bearish ‘outside day’ candle at all last week.”

-Monday Morning Outlook, January 27, 2025

On the morning this commentary was posted last week, the S&P 500 Index (SPX—6,040.53) gapped lower on news that China had created an artificial intelligence tool – DeepSeek – that was on par with U.S-based OpenAI and ran on a more cost-effective chip. 

Monday morning’s gap created a bearish “island reversal” pattern, a multi-day pattern in which a gap higher is followed by consolidation and a gap lower. It was the second time since November that this pattern emerged. In both cases, the gap lower marked a short-term low as the SPX rallied sharply in the following days.

In both cases, the gaps were filled within five days on an intraday basis. However, the SPX’s Jan. 24 close at 6,101 that preceded last Monday’s gap lower has not been filled on a closing basis, as the round 6,100 level and the close prior to last week’s gap lower colluded to act as resistance in Friday’s trading. Therefore, the potential reversal pattern that surfaced last Monday has yet to be invalidated, which presents a short-term risk for bulls. A close above 6,101 would invalidate the bearish signal and tilt the odds more in the bulls’ favor from this perspective.

Additionally, the SPX was rejected in the vicinity of past highs in mid-December and from two weeks ago. Looking back to mid-December, the price action can be best described as a range between 5,830 and 6,100, with the SPX entering this week’s trading nearer the top of this range, which favors the bears in the short term if this range-bound trading is to continue into the foreseeable future.

The market rallied last week after big-cap technology companies like Tesla (TSLA), Apple (AAPL), Microsoft (MSFT), IBM (IBM), Intel (INTC) and Meta Platforms (META) reporting earnings. There was also the Federal Open Market Committee (FOMC) meeting, where the Fed held pat as expected, all while investors reacted rather positively to a plethora of economic reports -- including data on housing, jobless claims, advanced fourth-quarter GDP and Core PCE prices. However, the collective reaction to this data was not enough to push the index through prior highs. That said, it was confirmed that Trump’s tariffs on Canada, Mexico and China would begin on Feb. 1, news that put a damper on the market Friday.

Additionally, after Friday’s close, there were headlines saying that the respective tariff rates could increase and there is nothing the countries can do now to forestall tariffs taking effect.

With the SPX trading closer the top of its range, there are multiple potential support levels above the range lows. The first potential level of support is at the 6,000-6,013 area, the latter marking highs in mid-November, early January and the low on Wednesday. The second level of potential support is at 5,965, or the breakout level from a trendline connecting lower highs in mid-January.

A break below these potential support levels heightens the odds of another trip to 5,835 or the Election Day close at 5,782, which marked last month’s low.

Resistance overhead is between 6,100 and 6,140, with the latter level being 20% above the August 2024 low.

On the sentiment front, the most bullish sentiment data point that we have, and used as a contrarian indicator, is total short interest on SPX component stocks, which increased slightly in the first half of January. A highly shorted market has been an ongoing theme since last year. With the SPX just below all-time highs and short interest on SPX components at a six-year high, the implication is the potential for short-covering that can either drive rallies or keep pullbacks to a minimum as shorts look for exit points.

A sentiment indicator that has shown improvement for bulls, but is not at a bearish nor bullish extreme, is the exposure of active investment managers, per the weekly National Association of Active Investment Managers (NAAIM) survey.

Right now, the reading is 68, down from the 100, or fully-invested reading, at the top in mid-December. One might view this as the market having more sideline money now relative to mid-December, even with the SPX around the mid-December levels.

But equity option buyers are still optimistic, and it may be that the market continues to chop around or move south again to shake out the optimism in this group before a sustained breakout above prior highs occurs.

Todd Salamone is Schaeffer's Senior V.P. of Research

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Shares of online real-estate marketplace Zillow Group Inc Class A (NASDAQ:ZG) are down 0.8% in premarket trading, despite receiving a bull note from KeyBanc. The analyst raised ZG's rating to "overweight" from "sector weight" and set a $100 price target -- a 26.3% premium over Friday's close -- citing potential tailwinds from an improving housing market.

Zillow stock has gained 40% over the past 12 months, yet 11 out of 25 analysts still rate it as a "hold" or worse, leaving room for additional upgrades that could fuel bullish momentum. On a year-to-date basis, ZG stock holds a nearly 12% lead. The stock’s most recent rally stalled just above $82, near its Nov. 29 three-year high of $83.67. Meanwhile, ZG's 10-day moving average remains a key technical support level.

An unwinding of pessimism could boost Zillow stock, as options traders are more put-biased than usual. The stock’s Schaeffer's put/call open interest ratio (SOIR) of 1.01 ranks in the 99th percentile over the past year, signaling bearish sentiment that could unwind.

Moreover, ZG stock's options are reasonably priced, with a Schaeffer's Volatility Index (SVI) of 60%, sitting in the 29th percentile of its annual range. This suggests low implied volatility, making it a compelling time to consider options trading on Zillow stock.

Trading options can be a complicated process as a lot of options strategies are available and traders need to evaluate all of the possible routes ahead of executing a trade. The beauty of options trading is that there are options strategies for every market environment. In this series, we will cover all available options strategies for an educated trader to consider when identifying trading opportunities.

In this article, we will be talking about one of the most popular options strategies known as Married Puts. When using a married put options strategy, traders hold a long position in a stock and also purchase an at-the-money (ATM) put option on the same stock in an effort to protect against potential downside in the short term, or against potential stock price depreciation.

A benefit of choosing married puts from the list of available options strategies is that the trader is able to cap his potential loss to a limited amount of money on the stock, in the worst-case scenario. This options strategy still allows the trader to participate in any stock price gains that happen as a result of stock price appreciation. 

Subscribers to Schaeffer's Weekend Trader options recommendation service received this DOCU commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

Though shorts have been in covering mode since the stock’s October peak, short interest still represents 4.5% of the stock’s available float and is 60% above last year’s short interest trough. This leaves plenty of short covering potential.

Vertex Pharmaceuticals Inc (NASDAQ:VRTX) stock is up 6% at $465.02 at last glance, after the U.S. Food and Drug Administration (FDA) approved the biotech's new non-opioid painkiller, Journavx. In a statement to the press, the company said it was the "first new class of pain treatment approved in more than 20 years." In response, Scotiabank raised its price target on VRTX by $3 to $433. 

Now recovered from its mid-December bear gap, VRTX is already up 15.7% since the start of 2025. Today's pop has the stock breaking back above the 250-day moving average, which provided support prior to last month's pullback, and recently acted as pressure. 

Options traders are chiming in straight out of the gate, with 8,427 calls and 2,690 puts exchanged so far -- 6 times the volume typically seen at this point. Expiring today, the weekly 1/31 417.50-strike put is the most popular, with new positions being sold to open there. 

Today's trading shows a shift in sentiment, as puts were more popular than usual over the last 10 weeks. This is per VRTX's 50-day put/call volume ratio of 1.18 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks higher than 89% of readings from the past year.