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Traders bet on a Nike earnings spike

Options traders appear to be betting on a big spike for Nike once the company reports its quarterly earnings.

According to Dan Nathan of RiskReversal.com, the options market is pricing in a 5 percent move off earnings, which are scheduled for release Tuesday after the bell. On Monday and Tuesday, more call options than put options were traded on Nike, potentially signifying a greater propensity among traders to make bullish bets on the sportswear company.

In a large Monday trade, one trader used a strategy called a 1x2 call spread, which is a leveraged way to make a bullish bet on Nike's stock — in this case, for only 27 cents per share. The bet involves buying the March 24 weekly 65-strike call and simultaneously selling twice the number of 67.50-strike calls.

The trade is profitable if Nike shares rise above $65.27 by Thursday. The downside to the structure is if that the stock rises far above the higher strike call of $67.50, the trader will see losses (unlike in a traditional call spread, which would simply cap the profits.)

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Nike shares have risen more than 3 percent this week, and traded just under $65.27 on Tuesday.

Nathan said even if the stock pops after earnings, it may not be long before it tumbles again, pointing to a previous reversal after a quarterly earnings report.

"The stock [has] massively reversed after earnings, so you could see a move up to the high 60s and then consolidate a little bit," he said Monday on CNBC's "Fast Money."

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