What Nike Options Are Saying
By Jud Pyle, CFA, chief investment strategist for the Options News Network
Shares of
Nike
(NKE) - Get Report
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.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."
