Bullish options activity ahead of Nike earnings

Posted Sep 29th 2009 10:10AM by Beth Gaston Moon
Filed under: Earnings Reports, NIKE, Inc'B' (NKE), Options

After the opening bell, Nike (NYSE: NKE) will be reporting first-quarter earnings results. Analysts are looking for per-share results of 97 cents and revenue of $4.9 billion. Check out Michael Fowlkes' earnings preview for a complete look at this report.

On Monday, option players waved a bullish flag ahead of Nike's results, trading nearly 6,000 contracts at the October 65 strike. With the stock trading at $59.22, this front-month option (expiring in about two-and-a-half weeks) is out-of-the-money by nearly 10%. Open interest expanded from 2,696 to 7,116, meaning that most of these traded to open. The majority were in fact bought to open, trading for about 35 cents apiece.

In order for the call buyer to profit, NKE would need to move to $65.35 (the strike price plus the premium paid) by October expiration on the 16th of this month. The call purchase, which has less monetary risk than a long stock holding in the event of a collapse in the shares, may have also been a stock-replacement strategy, where the investor swaps shares for calls.

The at-the-money (60-strike) straddle for Nike is currently priced at $4.15. This is one way of gauging how much the market thinks Nike may move before expiration. Currently, the market is indicating that NKE will be trading either $4.15 lower or higher by the time expiration arrives. This puts the stock at either $55.07 or $63.37.

Beth works for The Options News Network (www.ONN.tv), which provides daily stock and options commentary. The above comments are not intended as trading advice.

Tags: call buying, CallBuying, calls, earnings, featured, implied volatility, ImpliedVolatility, nike, options, stock replacement, StockReplacement, straddle