Nike is set to announce fourth-quarter earnings Tuesday after the bell and traders are bracing for a major move for the global retailer.
"The options market is implying about a 5-and-a-half percent one-day move," explained RiskReversal founder Dan Nathan. "This is a tad high of their fourth-quarter average move, which has been about 5 percent."
Nike shares this week slumped to lows not seen since the August swoon, rebounding slightly on Tuesday.
On Monday, Nike saw nearly twice the amount of puts versus that of calls. Nathan attributed the higher-than-usual put volume to the fact that investors are nervous over headwinds from a strong dollar. As it stands, 60 percent of Nike's sales come from outside the U.S. and, if Nike issues a warning on today's call, it could be a very negative development for large U.S. multinationals.
However, Nathan pointed out numerous global sporting events that could serve as a shot in the arm for Nike's stock price, which include the Euro 2016, the Copa America, the upcoming Olympic games in Rio and LeBron James leading the Cleveland Cavaliers to a Finals victory.
"There's a lot of things that should be a tailwind for Nike," said Nathan when noting that, despite Nike's recent downward trend, Wall Street analysts are still bullish on the stock as coverage includes 25 buys with an average 12-month price target of $71.
However, Nathan warned that if Nike misses and guidance is down, things could take a turn toward the stock's August flash crash lows.
"It's going to the mid-40s, but could set up as a good bounce candidate from there," concluded Nathan regarding the worst-case scenario for Nike. "Either way, options traders are expecting volatility."
According to FactSet, analysts are anticipating quarterly revenue of $8.29 billion and earnings of 48 cents per share.
