Nike (NKE) is looking to extend its winning streak when it steps up to release its first-quarter earnings report after the close this Thursday. Despite recent market turmoil, Nike stock is sitting on a year-to-date return of more than 20%, and NKE shares could set new all-time highs if this week’s report is well received.
Diving into the numbers, Wall Street is expecting a profit of $1.19 per share of Nike stock, up an impressive 9.2% from $1.09 per share in the same quarter last year. Revenue, meanwhile, is expected to rise 2.9% to $8.21 billion. While the year-over-year rise in sales may seem lackluster, remember that Nike is dealing with currency exchange issues due a strengthening dollar — expect Wall Street and analysts to take this into account.
In fact, expectations may be a bit higher among some on Wall Street. According to EarningsWhisper.com, the whisper number for Nike’s first-quarter earnings arrives 3 cents higher at $1.22 per share. That said, Nike has bested Wall Street’s targets in every quarter for the past year, lessening the bullish sentiment impact of this whisper number.
Still, optimism has spread throughout the brokerage community. Specifically, Thomson/First Call reports that 22 of the 29 analysts following NKE rate the shares a “buy” or better. However, the consensus 12-month price target of $125 represents a measly premium of 9% above current prices.
Optimism ends with the brokerage bunch, however, as Nike options traders have placed heavy best against NKE. Specifically, the put/call ratio for the September/October series arrives at 1.32, with puts easily outnumbering calls among options set to expire in the next two months. While this ratio moderates to 1.01 for the weekly September 25 series, there is still considerable trepidation among Nike options traders regarding NKE’s short-term outlook.
Click to EnlargeOverall, weekly September 25 series implieds for Nike stock are pricing in a post earnings move of about 3.6%. This places the upper bound near $120.66, while the lower bound lies at $112.34.
With the upper bound lying north of technical resistance at $120, the odds of an upside breakout appear pretty favorable. Meanwhile, a pullback to $112 would leave NKE perched on potential support at its 50-day moving average.
2 Trades for Nike Stock
Call Spread: For traders looking to side with the bulls ahead of Nike’s earnings, an October $117/$120 bull call spread stands a fair change of turning a profit. At last check, this spread was offered at $1.02, or $102 per pair of contracts. Breakeven lies at $118.02, while a maximum profit of $1.98, or $198 per pair of contracts, is possible if NKE closes at or above $120 when October options expire.
Put Sell: Alternately, NKE is currently creeping into oversold territory. To address this concern, traders might want to consider a weekly September 25 series $110 put sell position. At last check, the weekly September $110 put was bid at 34 cents, or $34 per contract.
The upside to this put sell strategy is that you keep the premium as long as NKE stock closes at or above $110 when September options expire at the end of this week. The downside is that should NKE trade below $110 ahead of expiration, you could be assigned 100 shares for each put sold at a cost of $110 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
