Nike (NKE) Interval Training

by Dan May 30, 2017 2:41 pm • Trade Ideas

Since making new all-time highs for Athleisure brands Lululemon (LULU), Under Armour (UAA) and Nike (NKE) in 2015 and 2016, shares of all three have massively underperformed the broad market falling 41%, 64%, and 22% respectively from those highs. While LULU and UAA have had particularly bad performance year to date, down 26% and 32% respectively, punctuated by big misses and guide downs in the last few months, NKE, despite being down 10% from its 2017 highs is actually up nearly 4% on the year.

To suggest that $50 is an important technical support level for shares of NKE might be an understatement, after the stock has made a series of lower highs and lower lows since its all-time high made in December 2015. Another lower low places the stock in difficult territory below $50 with little technical support till the mid $40s, and a possible gap fill to $40:


Aside from the trends within athleisure, I would say that it is not exactly a fair comparison given the scope of NKE’s product offerings, its international reach, its size etc.  NKE is expected to book $35 billion in sales this year, only a third coming from North America, while the majority of LULU’s expected $2.6 billion in sales comes from the U.S. and about 85% of UAA’s expected $5.3 billion in sales will come from the U.S.

A better comparison might be Starbucks (SBUX), also a premium brand, with a premium valuation, and a growth stock that until recently had woefully underperformed the broad market, but just last week made a new 52 week high and quickly approaching a potential breakout to new all-time highs from late 2015:


These two companies might be better comps, both about $90 billion market caps, both have seen their double-digit revenue growth from 2015 drop to single digits, causing the underperformance in the stock.

Does SBUX rebound raise your antennas for a possible move higher in shares of NKE if the company were able to print a beat and raise when they report their fiscal Q4 results on June 27th?  The options market is implying about a 5.5% move in either direction between now and the close on June 30th, which is a tad above the 10-year average one-day post-earnings move of about 5%.

For those inclined to play for a post-earnings bounce, you might consider a short dated call calendar, selling a near dated out of the money call and buying a longer dated one that will capture earnings of the same strike. For instance,

With the stock at $52.85 buy the NKE June 16th weekly / June 30th weekly 54 Call Calendar for 70 cents

-Sell to open 1 June 16th weekly 54 call at 25 cents

-Buy to open 1 June 30th weekly 54 call for 95 cents

Break-even on June 16th weekly expiration:

The ideal scenario is that the stock grinds a little higher towards $54, which is also its 200-day moving average and the June 16th calls expire worthless, and the June 30th’s that catch earnings have appreciated, or at least the short call offset the decay of the long call.

The max risk of this trade is the 70 cents in premium if the stock were to go well above the $54 strike or well below on June 16th weekly expiration.

The main point of this trade is to help finance a portion of an out of the money call for an event, and ultimately (once the June16th calls expire) look to spread the long June 30th call by selling a higher strike call in that expiration to make a vertical call spread to further reduce the premium at risk for an inexpensive position into the earnings event.