A sportswear giant is gearing up for a make-or-break moment in the spotlight after the bell on Thursday.
While it's not the leader of the booming athleisure trade this year — that honor goes to Lululemon — Nike is sitting pretty after hitting two new record highs this week. When it reports earnings after the bell, options traders are betting that the winning streak will continue for this sporting stock.
"The most active buying activity was taking place in the January 100-calls. Over 3,500 of those traded for about $3, so buyers of those calls are obviously betting that the stock will rally above the $100 strike price by at least the premium they paid," Optimize Advisors President Michael Khouw said Wednesday on "Fast Money."
Nike experienced twice its average daily options volume on Wednesday as traders positioned themselves to take advantage of this catalyst. While the overall market is implying a post-earnings move of about 4.2% in either direction into the weekend, buyers of these calls are betting on a move of at least 3% to the upside by January expiration.
However, as Khouw would point out, there is a reason that bullish traders are expressing their optimism through options rather than committing new money to the stock itself.
"The stock, obviously, has doubled since mid-2017, and a lot of that price growth has come from multiple growth. It's now trading at about 37 times earnings. In the same period of time, the S&P hasn't seen valuations grow that much," said Khouw.
By buying calls, these traders are paying for the opportunity to participate in any post-earnings upside in the stock, while limiting their exposure to risk should Nike really disappoint after the bell.
If they had bought the stock instead, they could potentially be in a significant hole should Nike head lower after the bell. By playing this catalyst with options, these traders are only risking the $2.95 in premium they paid per contract.
Nike was trading slightly lower in Thursday's session.