arrow-left arrow-right brightness-2 chevron-left chevron-right circle-half-full facebook-box facebook loader magnify menu-down rss-box star twitter-box twitter white-balance-sunny window-close
Previewing Nike (NKE) Earnings and Ways to Play with Spreads and Flies.
4 min read

Previewing Nike (NKE) Earnings and Ways to Play with Spreads and Flies.

Previewing Nike (NKE) Earnings and Ways to Play with Spreads and Flies.

Overview

  • Nike (NKE) reports Q4 earnings after the close Thursday
  • Consensus expectations of $0.03 EPS on revenue of $8.35 bil
  • Options are pricing a 4.5% expected move into Friday (isolating the earnings event) and a 7.6% expected move over the next month.

The Set-up

Nike set an all time high in January near $105, sold off to a March low near $62 and has now rebounded all the way to threaten those January highs.

Options aren't pricing a large move on earnings, but it's a significant chunk of its expected move for the next month. Here's a look at the expected move for this Friday and for the next month and next 3 months, from OptionsAI technology:

The expected move for this week (based on today's stock price) is essentially pricing a small breakout above the highs, to $106.50, the bearish consensus is above the lows of the last 2 weeks, to about $97.50. Of course expected moves don't say where the stock will definitely go, but they're a great comparison to recent levels in the stock and should be used to inform strike selection on trades.

For instance, a here are the trades returned for a bearish (consensus) trade using OptionsAI technology, and isolating this Friday's expiration:

Here's a closer look at the trades:

Bearish

Let's look at the mechanics of the short call spread 102/107 (bearish) and the long put spread 102/97.5 (bearish).

Long Put Spread - Buying the put spread breaks even at 100.36 (102 strike minus 1.64 cost of the trade). That give it just a 39% probability of profit but if the stock were to go to its lower recent band, which is just below the expected move, this trade would make 2.86. It sells the put at the 97.50 strike, financing the purchase of the 102 put. You can see the difference it makes at the uncapped 102 Put costs 1.02 more.

The breakeven of 100.36 is interesting because it's just enough room in case NKE pins to the big round strike of 100, it wouldn't really make much money there, but it would be safe from losing money on that sort of small move lower.

Short Call Spread - The Short call spread is interesting because it's essentially drawing a line in the sand that NKE does not break out to new highs on earnings. Its breakeven is 103.80 (102 strike plus max gain of 1.80) and it risks 3.20 if the stock is above 107 (a new all time high) on Friday.

Establishing the breakeven at 103.80, above where the stock is currently trading, gives it a probability of profit of near 60%. Of course, that's a really tight window nominally. So that's a trade for those that feel strongly that the stock will not break out, or those looking to target 100.

Butterfly - Speaking of targeting 100, here's an interesting way to do that, selling an iron butterfly, but bumping the center lower to lean bearish and target the 100 strike, the 97/100/103 iron fly, via OptionsAI:

This trade risks $56 and can make up to $244. The breakevens on this trade are 102.44 on the upside (103 strike minus .56) and $97.56 on the downside (97 strike plus .56)

Bullish

As far as bullish trades, the prior highs may make the earnings event itself tough to make money, because the stock is likely to struggle to establish breakout highs. To protect against that it sometimes make sense to look out a bit farther. Here's a bullish target, with consensus, from OptionsAI technology for the July 17th expiration:

Long Call Spread - The long 102/109 call spread targets a very realistic move higher but doesn't waste money beyond 109, its breakeven is 104.58, very near all time highs and it can make up to 4.42 at or above 109 in the stock. Here's how it looks on the chart:

See a small part of OptionsAI technology with your own price target and demo trades in AAPL HERE

Previously:

Actionable Insights from the Options Market

Earnings event expected moves
Unusual activity alerts
Spread trade education

Broker Dealer (FINRA Registered)

Built for one-tap spread trading
No chains. No per contract fees.
Powered by OptionsAI technology (Patent Pending)