Event: Nike (NKE) reports their fiscal Q3 results tomorrow night after the close. The options markets is implying about a 5% one day move. With the stock at $65. the March 65 weekly straddle (the call premium + the put premium) is offered at $3.80, if you bought that, and thus the implied weekly move, you would need a rally above $68.80, or sell off below $61.20 on Friday’s close to make money, or about 5.8% in either direction (the one day post earnings move is a bit less than the weekly). The average one day post earnings move over the last 4 quarters has been about 4.8%, while the 10 year average one day move has been about 4.9%.
Prcie Action/ Tehcnicals: NKE is up 4% on the year, 21% from its 2016 lows made last month, and down only 4.5% from its all time highs made in late December following their fiscal Q2 results.
The six month chart below of NKE shows the Nov 19th gap (green oval) to what was then new highs on news that the company announced a $12 billion / 4 year share buyback authorization when the existing $8 billion plan is completed, and a 2 for 1 stock split effective December 24th. And then the red oval, the stock’s post earnings gap that saw a nearly 9% reversal from its opening highs, into the stock’s split:[caption id="attachment_62351" align="aligncenter" width="600"] NKE 6 month chart from Bloomberg[/caption]
$68 on the upside should serve as psychological technical resistance, while $60, down about 7.5% should serve as support.
Ill also add that the stock is one of few large cap U.S. multi-nationals that did NOT re-test its August 24th flash crash low, thus making a higher low, and holding its long term uptrend:[caption id="attachment_62352" align="aligncenter" width="600"] NKE 5 year chart from Bloomberg[/caption]
Tomorrow we will follow up with some thoughts on trade ideas, but wanted to quickly highlight some unusual activity in the options of the stock today.
When the stock was $64.50 at 11am, a trader bought the March 24th weekly (this Friday) 65 / 67.50 1×2 call spread paying 27 cents to open 3800 by 7600. I suspect this is a leverage trade against a long stock position of 380,000 shares. Think of it as a leveraged overwrite, where the investor is buying a 65 / 67.50 call spread, but also overwriting their existing stock position by selling an additional 67.50 call. The investor has gains of the stock up until 67.50, where stock would be called away, but if stock were 67.50 or higher the investor would make the difference between the width of the spread and the premium paid for the ratio call spread.
We like these sorts of leverage trades into events like earnings, against long stock, as the options market routinely overprices event moves, making premium sales against long stock positions attractive.