SKX Finds Flurry Of Bullish Option Activity Ahead Of Earnings

If you’ve been following the price action on Skechers USA Inc (NYSE: SKX), the price peaked near $56 following the last earnings report in July. After pulling back, the company then took a hit after Nike Inc (NYSE: NKE) gapped lower following its earnings on September 24. The share price of SKX is significantly off its July highs and is fast approaching its earnings on October 28, 2021. With that backdrop, the stock up nearly 4% at this time and saw a large call vertical trade today.

SKX Earnings Expectations

SKX saw a huge jump in analyst expectations following its last report. This has created a much more positive outlook for the company. The positive revisions have been reduced slightly, but it still represents a 24% increase in 2021 EPS expectations and a 12% increase in 2022 EPS expectations from 90 days ago. Despite the increased outlook, the company has seen its share price fall from $56 to as below $41.

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As analysts have been largely increasing EPS estimates, the outlook is strong as well. Currently, the company has a 5-year projected growth rate of 71.55%. Analysts are also projecting a 35.6% and 9.7% increase in sales for 2021 and 2022, respectively.

That kind of growth is certainly not bad for a company that is trading at valuations near its 10-year median for metrics like P/E, P/B, P/S and EV/EBITDA.

SKX Options Activity

The call option activity on SKX exploded today with a sizzle index of 13.6. That means that thirteen times more calls were traded than the 5-day average. When you look at the trade analysis, 45% of the calls traded at the ask price. That would yield a bullish interpretation in and of itself but doesn’t give the full picture. As you dive into the option time and sales, it gives a more complete view.

Here’s a breakdown of the significant activity:

  • 10,000 19 NOV 21 $49 calls BOT in 1 print @ $1.00
  • 10,000 19 NOV 21 $55 calls sold in 1 print @ $0.30

As you can see, there was a large, long call, and short call trade. The combination of the two strikes shows a long call vertical placed for $0.70. This trade reaches its max gain of $5.30 if the stock reaches $55 in the next 36 days. That may seem like a long shot, which it is. However, the trade provides a framework that you can use to construct a trade that better fits you as a trader.

SKX Technicals

Looking at the chart of SKX, you’ll see a rather typical pullback for a stock in a long-term uptrend. The price is currently testing its 38.2% Fib retracement level on the weeklies and appears to be bouncing off of that support this week. If the price sustains its present level into the end of the week, you’ll see a breakout of channel across the candles over the past seven weeks. The volume is a little below average on the week with one more day of trading to go. This week’s candle isn’t the most bullish ever, but we’re also relatively early for a potential trend reversal.

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Conclusion

The combination of bullish option activity, improved fundamentals, and a potential technical trend change in SKX provides a higher degree of confluence for a bullish move. With the earnings approaching, it may be just the catalyst that could propel the stock quickly or even see the stock make pre-earnings run.

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