Premium Earnings 12-20-18: Nike and Carmax

• Posted by Greg Harmon
• on December 20th, 2018

Last earnings trades of the year. Two names today one that reports after the close tonight, Nike, $NKE, and one before the open Friday, Carmax, $KMX.

Nike, $NKE

Nike, $NKE, broke resistance and made a new high in September. it was short lived though as it turned south and dropped to the 200 day SMA in late October. It has pressed on resistance since then, each time falling back to a lower low. Into the report it is at trend support and what was resistance early in the year. It has a RSI falling in the bearish zone with the MACD falling and negative. There is support lower at 66.75 and 64.20 followed by 62.40 and 60.60 before 58.70 and a gap to fill to 57.25. There is resistance above at 70.50 and 72 then 74.70 and 78 before 80 and 82.75. The reaction to the last 6 earnings reports has been a move of about 4.67% on average or $3.25 making for an expected range of 65.60 to 72.25. The at-the money December Straddles suggest a larger $4.50 move by Expiry with Implied Volatility at 144% above the January at 40%. Short interest is low at 1.0%. Open interest is biggest at 65, 70, 72.50, 75 and 77.50 on the Put Side. On the Call side it is biggest at 80 then 75 and 76 followed by 72.50, with all much bigger than the Put side.

Trade Idea 1: Buy the December  68.50/65.50 1×2 Put Spread for free.

Trade Idea 2: Buy the December 69/71 Call Spread ($1.00) and sell the December 65 Put for 10 cents.

Trade Idea 3: Buy the December/January 75 Call Calendar ($0.70) and sell the December 64 Put for free.

Trade Idea 4: Sell the December 63/75 Strangle for a $0.85 credit.

#1 gives the downside with leverage and a possible entry at 65.50. #2 and #3 give the upside using leverage and may put you in the stock at 65 (#2) or 64 (#3). #4 is profitable on a close between 62.15/75.85 at Expiry. I prefer #3 or #4.

Carmax, $KMX

Carmax, $KMX, started higher off of support in April. It continued to a high in June with a gap up. It pulled back slightly from there to an August low before retesting the high in September. From there it started lower, confirming a double top in October. It continued down from there, retracing the full move higher, to where it sits into the report . It has a RSI oversold in the bearish zone and the MACD falling. There is support lower at 57 and 55.20 then 50.50 and 48. There is resistance above at 59.20 and 61 then 62.25 and 65 before 67.30 and 71. The reaction to the last 6 earnings reports has been a move of about 4.85% on average or $2.80 making for an expected range of 54.20 to 59.85. The at-the money December Straddles suggest a larger $4.20 move by Expiry with Implied Volatility at 155% above the January at 44%. Short interest is moderate at 6.7%. Open interest is focused at 55.50 and 59 on the Put Side and very large. It is also very large next week at 57.50. On the Call side it is light this week, but big at 59.50 next week.

Trade Idea 1: Buy the December 56.50/54 1×2 Put Spread for 10 cents.

Trade Idea 2: Buy the December 57.50/60 Call Spread ($1.00) and sell the December 53.50 Put for 25 cents.

Trade Idea 3: Buy the December/January 60 Call Calendar ($0.95) and sell the December 53.50 Put for $0.20.

Trade Idea 4: Sell the December 52/62.50 Strangle for a $0.75 credit.

#1 gives the downside with leverage and a possible entry at 54. #2 and #3 give the upside using leverage and may put you in the stock at 53.50. #4 is profitable on a close between 51.25 and 63.25 at Expiry. I prefer #1 or #4.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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