Shorting NKE: part 19
The numbers and the aftermath
Nike traded as low as 60.29 today, closing at 62.55. After hours trading lifted the stock to close at 69.08, with a high of 69.63.
c. 25% below where I shorted it last year this time.
That is a one-day range of 9 dollars which is not dissimilar from the range it has traded on any day, during the last 3 quarters, that they reported.
The talking points, for me, from Matthew Friend’s (CFO) update and guidance report?
Earnings came in at 14 cents per share, 1 cent or 2 cents (dependent on whom you believe), better than expectations, but lower than last year’s $1.01 a share.
Sales decline decelerating to single digits in Q1 after the 12% decline this past quarter
Q1 gross margin is expected to be -425 basis points versus -350
Tariff impact for this year is c. 1 billion dollars
They now source c. 16% of footwear from China versus 36% previously
The volume for today is 2.5x the average daily volume for the last 50 trading days.
The put/call ratio remains over 1. A short squeeze may be on the horizon. But not a gamma squeeze since the volume soared.
So, where does that leave me? I have a number of things to consider but for now I am remaining short.
Especially as NKE is still over 25% lower. I will have insurance profits to take, as well as a revised volatility strategy as NKE implied volatility closed at 52.3% today. 24% higher than the historical volatility.
Between July 25, 2025, and December 17, 2027, that puts the implied volatility at a premium to the entire curve. There are bargains along the curve. Especially in any markets for NKE options more than 267 days until expiration.
This is where knowing the term structure of volatility strategies comes into play.
I trade a number of variables. Gamma is one of them, where I do not buy rising markets and do not sell or short falling markets. While that is a simplistic explanation of my approach to active management, it means that I bought calls and shares every down day for a year. To reduce risk. To prepare for the inevitable short squeeze that we saw this afternoon. What tomorrow brings is anyone’s guess. There are people ‘long’ from the 52-week low and there are people who trade everything short term so this ‘pop’ in price will satiate them.
The market dynamics will be ‘wild’ in the morning where the 1st 15 minutes will be very telling.
The information from Nike does not give many much confidence. There are a number of headwinds that analysts are calling out, but the number one is that they are selling false confidence by suggesting they can pin costs of tariffs to 1 billion dollars for this year.
News did break that a trade deal with China is done (Bloomberg).
As a result, I remain short NKE overall with my insurance which includes in the money calls as of today’s close. I am a little wary of a short squeeze. There was some evidence of one this afternoon but overnight I will get some more clarity. European funds hold NKE shares. They might be sellers at this level. 17 dollars above the 52 wek low. I have taken profits to remain short as it has risen. We shall see.
NKE still trades at over 25x forward earnings forecasts.
To be continued…