Mike Khouw's Nike Trade Ahead Of Earnings

On CNBC's "Options Action," Mike Khouw spoke about Nike Inc. NKE ahead of earnings.

The Beaverton, Oregon-based company is going to report earnings Tuesday and it usually moves around 4.7% on the event. The options market is currently implying a move of 7% in either direction.

Khouw thinks Nike's valuation is high and the option premiums are elevated. He believes it would be a good idea to sell call options against the long stock position, going into earnings. Specifically, he would sell the October $120 call for $3.60. Choosing this strike, he has around $5 of potential upside and on top of that he gets $3.60 in premium.

Those who don't own the stock, should not sell naked calls, said Khouw. Instead, they should sell the October $120 call and buy the October $125 for a credit of $1.60. The premium is around a third of the distance between strikes.

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