Nike (NKE) Interval Training

by Dan March 20, 2017 11:00 am • Trade Ideas

On Friday’s Options Action on CNBC, my co-panelist Carter Worth of Cornerstone Macro Research laid out a fairly compelling bullish case for shares of Nike (NKE) prior to its earnings report tomorrow after the close. Watch here:

I see what Carter sees, the stock having recently bounced off of the long-term uptrend, and very recently breaking above the downtrend that has been in place from the all-time highs in late 2015:

NIKE 5yr chart from Bloomberg

There are a couple compelling comparisons to prior bull market leaders that had put in all time highs in 2015 then underperformed the broad market but have just come back to life in 2017.

Apple (AAPL) to start:

AAPL 5 year chart from Bloomberg

And Disney (DIS), which has yet to make a new high, but seems destined to do so…

DIS 5 year chart from Bloomberg

Carter is betting NKE will be next.  Mike Khouw chose to express this bullish view with a call purchase in June, with the stock near $57.50, he detailed the purchase of the June 57.50 call for $2.45, leaving an upside break-even at $59.95, up 4.3% from the trading level.

Options prices in NKE seem fair, while 30 day at the money implied volatility is elevated prior to results near 25%, they are very likely to fall back towards 20%,and the June at the money calls are offered at about 21%, they could definitely be cheaper if the stock were not to move meaningfully following results.


If Carter has taught my anything over the years about charts, its to connect the dots, and to my eye, near term NKE might face some resistance just above $60, its Sept 2015 gap, and its Aug 2016 high:

NKE 2 yr chart from Bloomberg

After the stock’s nearly 15% year to date gains, which might discount some good news, short dated options prices elevated, it might make sense to consider a call calendar, selling short-dated upside call to finance the purchase of a longer dated one, this strategy opposed to an outright June at the money call purchase might be a tad more forgiving if the stock does not immediately make a post-earnings upside move.

For instance:


NKE (58.50) Buy the Apr/June 60 call calendar for .70
  • Sell 1 April 60 call at 1.05
  • Buy 1 June 60 call for 1.75


Breakeven on April expiration – This trade idea does well if the stock expires close to the 60 strike on April expiration. It loses money if the stock is lower than here or substantially higher than 60. If the short April 60 call expires worthless the position can then be rolled with a very cheap June call spread the result. The most that can be lost under any scenario is .70 and that risk can be even lower upon a roll.