Athletic apparel manufacturer Nike (NKE) is down 30% over the past year. One trader sees the stock trending lower over the weeks ahead.
That’s based on the December 27 $65 puts. With 37 days until expiration, 4,333 contracts traded compared to a prior open interest of 128, for a 34-fold rise in volume on the trade. The buyer of the puts paid $0.53 to make the bearish bet.
Nike shares recently traded for just under $75, so shares would need to decline by $10, or about 14%, for the option to move in-the-money. Nike has a 52-week low at $70.75.
Operationally, Nike has had a poor year. Earnings growth dropped 28%. Even worse, revenues declined by over 10%, suggesting slow sales and demand for Nike products.
Because shares have been declining as quickly as earnings, Nike still looks relatively expensive at 28 times earnings.
Action to take: While Nike is a leader in sports apparel and a strong brand, declining revenues speak louder right now.
Investors should wait for a reversal of the current downtrend before buying in. Nike does pay a 2.1% dividend at current prices, but the yield could be higher as shares drop lower.
For traders, the December $65 puts are aggressive, and unlikely to move in-the-money. However, they are inexpensive enough that they could see mid-double-digit returns over the coming weeks on a further downtrend in Nike shares. Traders will want to take profits well before expiration.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.
