Sports apparel giant Nike Inc (NKE) is ready to hit the starting line once again next week, as the company is on tap to release its third-quarter earnings report. Sentiment is bullish ahead of the event, with Stern Agee claiming “there is nothing to fear in Nike’s earnings.”
With Nike stock once again set to challenge resistance at $63.50, NKE options traders should be on alert for a breakout.
Wall Street is looking for an 8.9% year-over-year rise in earnings to 49 cents per share. Revenue is seen adding 9.9% to $8.2 billion on the quarter.
That said, some in the brokreage community have set their sights higher, with EarningsWhisper.com reporting a whisper number of 52 cents per share — a target that should be easy for Nike to top, given that the company has bested the consensus estimate in every quarter for the past three years.
Taking a closer look at the brokerage bunch, we find a considerable bullish contingent. Specifically, according to Thomson/First Call data, 26 of the 30 analysts following Nike stock rate the shares a buy or better, with four holds and no sell ratings. There is room for improvement, however, as the 12-month consensus price-target of $71.08 represents a meager premium of just 12.5% to Thursday’s close.
Options traders have also jumped on the bullish bandwagon ahead of Nike’s earnings. Specifically, the March/April put-call open interest ratio arrives at 0.51, as calls nearly double puts among near-term options. Furthermore, this ratio falls to 0.45 for the weekly March 24 series, as call traders place a heavier focus on Nike’s report.
Click to Enlarge Overall, weekly March 24 series implieds are pricing in a potential post earnings move of about 5.2% for Nike stock.
This places the upper bound near $66.28, while the lower bound lies at $59.72. With NKE battling resistance at $63.50 for the past two months, a post-earnings rally could go a long way toward establishing a longer-term uptrend for the shares.
Meanwhile, a decline would test support at $60, leaving NKE well above long-term support at $55.
2 Trades for Nike Stock
Call Spread: For those traders willing to side with the bulls ahead of Nike’s earnings report, a March 24 $63.50/$65 bull call spread stands a fair chance of turning a profit. At last check, this spread was offered at 60 cents, or $60 per pair of contracts. Breakeven lies at $64.10, while a maximum profit of 90 cents, or $90 per pair of contracts, is possible if Nike stock closes at or above $65 when March 24 series options expire.
Put Sell: Alternately, if you are uncertain about the strength of Nike’s post earnings rally, you could look into a put sell position. Along those lines, a weekly March 24 series $58 put sell might be a way to capitalize on NKE’s technical support. At last check, the March 24 series $58 put was bid at 25 cents, or $25 per contract.
The upside to this put sell strategy is that you keep the premium as long as Nike stock closes at or above $58 when March options expire at the end of next week. The downside is that should NKE trade below $58 ahead of expiration, you could be assigned 100 shares for each put sold at a cost of $58 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
