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Options Play on $NKE Ahead of Earnings

First we will examine the stocks historical earnings performance record. We can see that over the past 8 quarters the stock has rallied 4 times on earnings day with an average move of 4.4%. This does not tell us that the stock is guaranteed to rally this quarter but it does show us that there is a slight bullish bias in the performance of NKE on earnings day. This means that as we work through the rest of our analysis will have a bullish bias.

With a sense of how the stock has moved on earnings day in the past we can calculate the expected movement for this quarter. To best isolate the expected movement in NKE we will use the shortest dated options that still contain the catalyst event. In this case we will use the June 30rd weekly expiry. To measure the market makers expected move we will need to calculate the price of the at the money straddle. We looked at the NKE $3.00 strike straddle in the June 30rd weekly expiry and it is implying a whopping $3.00 move.

$NKE Straddle
The straddle is marking around $3.00. This implies an expected move of around $3.00. This implies a move of around 5.2% by Friday’s expiry. Since this is in line with the stocks historical movement record we know that there an opportunity to put on a good reward vs risk setup GOOGL.

Upside target = $52.60 + $3.00 = $52.60

Downside Target = $52.60 – $3.00 = $49.60

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