NKE Analysis


Update 12/22/2017: NKE’s earnings eat the Street estimate by 2.3%, coming in at $0.46 per share against the consensus forecast of $0.4372. Shares fell $4.71 in extended hours trading and then recovered by $2.67, falling into a narrow sideways movement. I exited for a loss.

Shares fell by 2.8% over my holding period of less than a day, or a -1,034% annual rate. The options position produced a -10.8% loss for a -3,931% annual rate.

Going into the trade the Zacks earnings surprise predictor shows a 1.21% score in the context of a neutral rank (3), accurately anticipating the actual report.

The trend metrics, however, were less successful. The average directional indicator (ADX) at 43.63 suggested a strong trend, and the directional indicators, with +DI at 29.27 and -DI at 13.55, showed it as an uptrend, missing the decline that actually ensued.

I shall complete this report with the daily movement vs. the expected movements after the number are available.

NKE publishes earnings on Thursday after the closing bell.

I shall use options that trade for the last time eight days hence, on Dec. 29.

Implied volatility stands at 31%, which is 3.3 times the VIX, a measure of the volatility of the S&P 500 index.

NKE’s IV stands in the 96th percentile of its annual range and at the peak of its most recent broad movement.

The price used for analysis was $64.57.  Given the expectation of a positive earnings surprise and the upward trend, I shall build the trade as a bull vertical spread.

Premium: $0.58 Expire OTM
NKE-bull put spread Strike Odds Delta
Long 63.00 76.4% 21
Break-even 61.58 72.8% 25
Short 61.00 61.8% 35

The premium is 58% of the width of the position’s wings. The risk/reward ratio is 2.4:1.

The zone of profit in the proposed trade covers a $3.67 move below the short strike and an infinite distance above it.. The biggest immediate move after each of the past four earnings announcements was $5.83, and the average was $3.12. After eliminating the maximum and minimum post-earnings movements, the central tendency is $3.06.

The expected move covering 85% of occurrences is $3.23, within downside cushion above the strike price.

The bid/ask spread is 12.9%.

Decision for My Account

I have entered a position on NKE as described above. The stock at the time of entry was priced at $64.67.

By Tim Bovee, Portland, Oregon, Dec. 21, 2017


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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