Trading Nike’s Earnings

Nike (NYSE: NKE)(FREE stock trend analysis) is scheduled to report earnings tomorrow after the bell. Estimates for the company are 0.71 EPS on 4.40 billion in revenue. Some analysts are looking for Nike to continue to surprise everyone, even during an economic downturn, and this is reflected in the 0.76 EPS whisper estimate.

Nike’s earnings are particularly interesting for vol and options traders because their earnings are almost always on expiration week; this sets up a situation where vols remain high with only two or three days left to trade in the contracts, with vol cratering immensely after earnings.

Nike is currently trading in a band from the 61 level to, roughly, 67 on the upside. The at the money strangle (65/60), not coincidentally, is selling for 1.00-1.05, which computes to an expected range of $66.00-59.00. I tend to favor the downside here as I believe analysts are a bit too bullish here; even if Nike can make the whisper number the stock probably still trades down.

Nike’s forward P/E of 16 is not exactly over-valued, though the chart is having trouble maintaining above the 50 day and every day it closes below it gives the bulls reason to retreat. I suggest shorting the stock and selling the Dec 65/60 strangle against for 1.00-1.05.