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
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 — 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.
