Earnings Preview: Nike Inc (NKE)

Option traders have high expectations ahead of Nike Inc (NYSE:NKE) earnings

Mar 22, 2016 at 2:03 PM
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Athletic apparel juggernaut Nike Inc (NYSE:NKE) will report fiscal third-quarter earnings after the close tonight. The stock has been hot ahead of the event, gaining over 12.6% since its March 9 bottom of $57.95, including today's 0.8% pop to hit $65.25. This strong technical performance has led to bullish activity from the options crowd ahead of the event. 

According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than three NKE calls have been bought to open for every put during the past two weeks. What's more, the resulting call/put volume ratio of 3.26 arrives in the 99th percentile of its annual range

Plus, the blue chip's Schaeffer's put/call open interest ratio (SOIR) sits at 0.51, putting it below 98% of all comparable marks from the past year. In simpler terms, short-term option traders have taken an unusually call-skewed stance. 

Today's activity is no different, as calls are outpacing puts by a 3-to-1 margin, with call volume threatening to topple the annual high set yesterday. Moreover, NKE's 30-day at-the-money implied volatility has jumped to 34%, putting it in the 96th percentile of its annual range, signaling a strong demand for short-term options. Sure enough, the most popular NKE option today is the weekly 4/1 65-strike call, which traders are buying to open in hopes of an extended rally from the shares through next Friday's close, when the weeklies expire. 

This optimism may be due to the stock's tendency to outperform after earnings. Specifically, the shares have moved higher in the session immediately following an earnings release in five of the past eight quarters, with an average single-day swing of 5% in either direction. This time around, however, the options market is pricing in a larger 8.4% post-earnings move from NKE. 

While most analysts share the upbeat expectations seen among speculators, five still say the stock is a "hold" or "strong sell." Plus, NKE's consensus 12-month price target sits right overhead at $71.24. As such, Nike Inc (NYSE:NKE) could be in store for some more bullish attention from Wall Street, which could further ignite the stock's fire


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