The Long Decline
Nike shares have become a textbook example of a falling knife. From an all-time high of roughly $179 nearly five years ago, the stock has plummeted almost 70%, hitting 9-year lows heading into its latest quarterly earnings report. Each successive earnings release over the past several years has driven the stock further down, creating a brutal staircase pattern of gap-downs on a weekly chart.
What makes this decline particularly punishing is that valuations still are not cheap. While the price-to-earnings ratio has compressed somewhat, the erosion in earnings power has kept Nike from becoming the obvious bargain that bottom-fishers keep hoping for. The "E" in the P/E has deteriorated alongside the stock price, preventing the kind of deep-value setup that might attract institutional buyers in size.
Technical Picture: Oversold but Not Recovering
On a one-year daily chart, the stock was trading around the $51–$52 level ahead of earnings — far below the 200-day moving average at $66 and well under the 50-day simple moving average near $60. Every major moving average slopes downward, and the stock sits beneath all of them. That is about as bearish a technical configuration as one can find.
The Relative Strength Index (RSI), a key momentum indicator, sat near 26 — firmly in oversold territory on a technical basis. However, oversold does not mean "about to bounce." Nike has repeatedly hit oversold RSI readings over the past 12 months without staging any meaningful recovery. The momentum remains decisively to the downside, and short interest has likely accumulated in the name as a result.
If there is a silver lining, the longer-term trend has started to stabilize slightly compared to the relentless waterfall of previous quarters. But when a stock is at 9-year lows, below every major moving average, and all those averages are sloping down, it is difficult to frame the picture as anything but negative.
Fundamental Headwinds
The challenges facing Nike under CEO Elliot Hill's "win now" strategy are multi-pronged. Margins have been compressing, inventory levels remain elevated, and the critical China business — representing roughly 15% of total revenue — continues to underperform. These are not transient issues; they represent structural problems that the turnaround effort has yet to resolve. Quarter after quarter, investors have asked whether the bottom is in, and quarter after quarter, the answer has been no.
A Risk-Defined Bullish Strategy: The Call Diagonal
For those who believe this might finally be the inflection point, there is a way to express a cautiously bullish view with defined risk — particularly important when trading around an earnings event in a volatile name. The strategy is a bullish call diagonal spread, two weeks wide.
The trade works as follows: buy a slightly in-the-money 50-strike call in the April 17th monthly options (approximately 17 days to expiration) and simultaneously sell a 56-strike call in the near-term April 2nd weekly options (expiring in just a couple of days). This creates a $6-wide bullish call diagonal at a cost of roughly $3 per spread, or $300 in risk per contract.
The reason this $6-wide diagonal costs only about $3 — half its width — is volatility dispersion. The near-term weekly options carry heavily elevated implied volatility due to the imminent earnings event, while the April 17th monthlies trade at comparatively lower implied volatility levels. By selling the expensive near-term volatility and buying the cheaper longer-dated option, the trader captures this dispersion to reduce the cost of the position.
The breakeven sits at approximately $52, right around where the stock was trading pre-earnings. Anything above that level represents potential profitability, with maximum profit occurring at or near the $56 short strike at the near-term expiration. Critically, because the long option has about two additional weeks of life remaining after the short option expires, the trader retains the ability to roll the short call at least once more — collecting additional premium credits that further reduce cost and increase potential profitability.
The Core Tension
This situation captures a fundamental tension in trading. Every technical and fundamental signal points lower, which means the worst possible price to initiate a bearish position is right here at these depressed levels. The bar for earnings expectations is extraordinarily low, which paradoxically creates conditions where even a modestly less-bad result could spark a relief rally. The call diagonal allows a trader to position for that bounce while keeping risk tightly defined — a prudent approach when dealing with a stock that has punished bottom-callers repeatedly over the past several years.
Whether this quarter finally marks the turn for Nike remains to be seen. But for options traders, the elevated volatility environment and extreme technical conditions create opportunities to structure asymmetric risk-reward setups — if approached with discipline and defined risk.