Trading Nike: Snapshot of a Still-Growing Giant

By Andrew Keene Mar 21, 2013 1:43 pm

Nike's primary attraction to shareholders is its steady dividend payouts. Consumers like its wearable technology and smart design.

Nike (NYSE:NKE) is the largest retailer of athletic apparel and footwear in the world. It has over 42% of the $48 billion US market for footwear. In 2012, the company had $25 billion in revenue with a net income of $2 billion. Nike’s 200-day moving average is $49.55. Its 100-day moving average is $51.28. Its 50-day moving average is $54.06. Its 20-day moving average is even higher, at $54.49.

Because Nike’s market share is so mature, its primary attraction to shareholders is its steady dividend payouts. Its dividend yield is $1.53 while the industry average is only $.79. Nike continues an aggressive shock buyback plan, setting aside $8 billion to repurchase shares over the next four years. Since 1997, Nike’s dividend payouts per share have increased 600%.

The shoe giant recently sold off two of its brands, Umbro and Cole Hann, to private equity firms for a total of $795 million. In January, the firm signed an endorsement deal with world's number one golfer, Rory McIlroy. In fact, Nike has more room for growth in the golf market where it only has 7% of the $10 billion market. Known as a forward-looking company, Nike recently announced a partnership with the Swiss company Bluesign Technologies to increase its use of sustainable chemicals and material in its products.

Nike continues to develop new products focused around its digital technology, including products that track performance in any sport. The company has seen considerable growth in its wearable computing devices, and that growth is expected to continue. Its lightweight FlyKnit shoes continue to be popular as well.

The Trade: Selling the NKE March 52.5-55 bear call spread for $1.35
Risk: $115 per 1 lot
Reward: $135 per 1 lot
Breakeven: $53.85

Greeks of this Trade:
Delta: Short
Gamma: Long
Theta: Short
Vega: Long