Don’t Do It: A Bearish Options Play Ahead Of NKE Earnings

Posted On June 29, 2017 1:45 pm

Nike (NKE) is set to report earnings after the close Thursday. While expectations have been reduced—earnings per share for 2017 have dropped from $2.65 to $241 over the past 60 days with revenue growth of just 4.5% – I still don’t think the bar has been set low enough.

The recent move to sell more product through Amazon (AMZN) comes from a weakness as it needs to replace the loss of important distribution channels such as the dual bankruptcy of Sportmart/SportAuthority and general weakness is mall based retailers such as Foot Locker (FL).  

It has also been losing share to competitors such as a resurgent Adidas and upcomer Under Armour (UAA).  Nike has also missed out on the shift from performance athletic shoes to more fashion and casual looks from Skechers (SKX) and Zumiez (ZUMZ).

In response to this changes in buying and product preference NKE announced trimming of workforce (laying off 2,000), reducing the number of styles and leave some markets to focus on the largest cities.

Given the above it’s hard for to believe NKE will post numbers or issue guidance that are anything merely inline to downbeat.

And given the stock has run up some 6% off the recent lows over the past week and is now heading into resistance at the $54 level I think tis sets up as a sale into earnings.

I’m using a short term bear diagonal to take advantage of both directional move lower and the differential implied volatility between the expiration dates.

-Buy to open 4 contracts July (7/07) 53.5 Puts

-Sell to open 4 contracts June (6/30) 52 Puts

For a Net Debit of $0.72 (do not go above $0.78)


This gives us 1:2 risk reward if shares drop below 52, plus the additional week to make any adjustments or hold for further profits.

Nike’s Pain will be our gain.

About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.