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Analyst-Related Woes Continue for Nike

Buy-to-open put volume nears peak levels on NKE

by 9/14/2012 2:20 PM
Stocks quoted in this article:

Pessimism has been steep toward NIKE, Inc. (NYSE:NKE - 96.59), with traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) buying to open 1.98 puts for every call over the last 10 sessions. What's more, this volume ratio ranks above 93% of other similar readings taken in the past 12 months, indicating puts have been picked up over calls at a near annual-high clip.

Even more telling is NKE's Schaeffer's put/call open interest ratio (SOIR) of 2.23, which shows that put open interest more than doubles call open interest among options with a three-month shelf life. This ratio ranks in the highest percentile of its annual range, suggesting short-term traders are more put-heavy now than at any other time during the last year.

In today's session, speculators are scooping up puts with a flurry. Around 18,000 put contracts have crossed the tape, representing more than triple the average intraday put volume. Near-term traders are paying close attention to the September 95-strike put, which has seen 6,100 contracts trade. A good portion of these have crossed at the ask price, and 2,317 contracts currently represent open interest at this strike, making it safe to assume some of these puts are being bought to open.

By picking up the long puts, traders are betting on NKE to continue its recent downtrend, and finish next Friday (when the options expire) below breakeven at $94.48 (the strike minus the volume-weighted average price of $0.52). This represents a 2.2% slide from its current price. Should NKE fail to breach the $95 strike, the maximum risk associated with the play is $0.52 per contract.

This recent uptick in put volume isn't all that surprising, given NKE's technical struggles. The stock has shed roughly 19%, since topping out at $114.81 in early May, and is now sitting right around where it started 2012. Additionally, NKE was woefully rejected by its 50-week moving average this week, putting the stock on track to make it 12 weeks in a row underneath this technical ceiling.

Things aren't getting any better today. Following yesterday's brokerage downgrade and subsequent drop, the shares are off more than 2% at last check, after Canaccord Genuity expressed concern over the company's future growth potential, projecting sales to "slow meaningfully." Additional analyst-related headwinds could lie ahead. Seven out of 16 analysts maintain a "strong buy" recommendation toward NKE, with not a "sell" to be found. A capitulation by this group could further pressure the stock's price action.


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