Nike (NKE) Swoosh – Update

by riskreversal September 28, 2016 11:36 am • Trade Updates

On Friday we previewed Nike’s (NKE) fQ1 results that were issued yesterday after the close. We felt the combination of relative under-performance of the stock, its precarious technical set up sitting on near and long term support and the poor guidance given last week from Finish Line (FINL) spoke to a defined risk short delta trade into the earnings. Here’s was some rationale and the original trade:

If the company were to just come in line, and offer weaker than expected FY2017 guidance, then the stock will be back at $50 very quickly. I want to target that level with a trade structure that looks to offset the near term inflation of options prices into the print.

*NKE ($55.40) Buy Oct 55/ 50 Put Spread for $1.25
  • Buy to open 1 Oct 55 put for 1.55
  • Sell to open 1 Oct 50 puts at 30 cents

NKE reported earnings that beat estimates (low quality, very low tax rate) but their guidance on future orders disappointed which is the cause of the stock’s weakness today.

At $53.60, our trade is worth about $1.75 (paid $1.25). Not great given the stock’s muted reaction, but sure beats a sharp stick in the eye.

As far as trade management, the level to keep in mind is the breakeven is still lower at 53.75. If the stock is unable to get below that breakeven level (it was below that after hours last night) in the near term it would make sense to take profits and not risk a move back above $55, where the trade would be worthless on Oct expiration. That level also corresponds with a low from back in early 2016 and could act as mild support.

NKE 1yr chart from Bloomberg
NKE 1yr chart from Bloomberg


But as we suggested in the original post, its a break of the long term uptrend that has us spying $50 in the not to distant future:

NKE 5yr chart from Bloomberg
NKE 5yr chart from Bloomberg

We will be patient on this one for the time being.