What Nike Options Are Saying

By Jud Pyle, CFA, chief investment strategist for the Options News Network

Shares of Nike(NKE Quote) are more than 30% higher from their March sub-$45 lows, and at least one investor could be calling for even more upside in the sneaker maker throughout the next few weeks.

Looking at the out-of-the-money Oct. 65 calls, more than 5,800 of these options traded so far today vs. open interest of 2,696 contracts, indicating the investor traded these calls to open. The majority of this volume has been on the buy side, for a price of around 35 cents per contract. That means if the investor decides to hold these options until expiration, the call purchase would make money if NKE shares expire higher than $65.35.

NKE did not announce significant news today, but the company is scheduled to announce first-quarter earnings after the market closes tomorrow. Analysts are expecting per-share results of 97 cents, or 6 cents below what the company earned during the first quarter of last year.

Today's option activity could also be a stock-replacement strategy, where the investor is selling shares, but buying the calls in case there is further upside. The call purchase could have less monetary risk than owning the stock outright, should earnings disappoint Wall Street. (The maximum loss for a long call is the premium paid, plus commissions).

One other thing to note about NKE is the price of the October 60 straddle. It is currently trading for a price around $4.10. The reason I point this out is because when a big catalyst such as earnings is forthcoming, the front-month, at-the-money straddle is a decent indicator of what the market expects as far as a move in the stock as a result of the event. In this case, the market is suggesting that NKE will likely be trading between $55.90 and $64.10 by the time October expiration arrives.

Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.