An Options Trade That Bets on Deckers Gaining Market Share Over Nike

Deckers’ recent earnings report initially sparked optimism, but the rally faded quickly. As of now, Deckers Outdoor (DECK) trades just 5% above its 52-week lows. Unless the stock stages a meaningful rebound from these levels, the price action remains unconvincing a classic setup for a potential bearish-to-bullish reversal.

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Adding to the challenge is the ongoing weakness in the broader consumer discretionary sector. We highlighted this trend recently when discussing the XLY ETF, and it continues to pressure stocks across the industry.

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Even so, opportunities often emerge when looking beyond sector-wide challenges. One strategy to manage these risks is a “pairs trade” going long on one stock while shorting another within the same sector. This approach aims to offset market-wide pressures while capitalizing on company-specific divergences.

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A compelling example is a long position in Deckers and a short position in Nike (NKE), targeting the contrasting fundamentals of these two athletic footwear giants through the end of 2025. The goal is to benefit from Deckers’ resilience while profiting from Nike’s ongoing struggles, all while reducing exposure to broader market swings.

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The strategy hinges on the view that Deckers, powered by its surging HOKA brand and solid financial standing, will outperform Nike, which is wrestling with inventory challenges, declining market share, and macroeconomic headwinds. Over the next year, we anticipate that valuations between the two will converge, driven by DECK’s upside potential and NKE’s persistent weakness.

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Why Deckers Stands Out

Deckers’ appeal comes from strong brand momentum and financial strength. HOKA continues to post impressive growth, and expansion efforts in Asia-Pacific, particularly China, are helping diversify beyond U.S.-centric risks.

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Despite a nearly 50% stock decline this year largely due to retail sector headwinds and tariff-related concerns, Deckers’ fundamentals remain solid. A healthy balance sheet supports aggressive share buybacks and operational flexibility. Its valuation is notably attractive compared to Nike and the broader market, with a trailing P/E of 17.2 and forward P/E of 17.6.

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Seasonal demand for UGGs could provide an additional boost later in the year. Even with elevated inventories and tariff impacts, Deckers’ enterprise value-to-sales ratio of just over 2.5 closely matches Nike’s despite significantly stronger growth. If consumer spending steadies, DECK could potentially rally 20–30% by December 2025.

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Nike’s Persistent Struggles

Nike, on the other hand, continues to face deep-seated structural challenges. In Q4 2025, revenue dropped 12% to $11.1 billion as the company battled inventory surpluses and weakening demand in major markets like North America and China. Earnings per share growth has sharply declined, and analysts project further weakness due to rising costs and increased discounting.

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The stock has been in a prolonged bear market, down nearly 60% from its 2021 highs. Nike is steadily losing market share to nimble competitors such as HOKA, On Running, and Lululemon. A lack of innovation in legacy product lines like Air Jordan and missteps in its direct-to-consumer strategy have strained relationships with retailers and weakened appeal among younger consumers.

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While U.S.-China trade tensions have cooled somewhat, tariff risks remain significant. Nike estimates that import duties could add over $1 billion in costs, further pressuring EBITDA margins, which are already hovering around 14%. Although recent earnings slightly beat lowered expectations and prompted some analyst upgrades, these signs don’t point to a sustainable recovery.

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Current valuations suggest that some investors still believe Nike will return to its prior growth trajectory or reclaim the elevated net income margins seen in 2021. However, given the company’s challenges, that assumption looks increasingly optimistic.

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The Case for a Pairs Trade

Pairing a long position in DECK with a short position in NKE allows investors to focus on company-specific performance while reducing exposure to sector-wide risks like tariff shocks or retail slowdowns.

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Deckers boasts faster growth, a lower valuation, and fewer uncertainties compared to Nike. While DECK’s volatility (14.84%) is higher than NKE’s (9.37%), this favors the bullish side if a rebound occurs. Since both companies operate within the same industry, a pairs trade naturally hedges against macro factors while capturing the competitive pressure HOKA places on Nike’s performance footwear segment.

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Even if Deckers’ net income margins were cut in half—matching Nike’s projected 7.5% margin for 2026/2027 it would still trade at roughly the same multiple as Nike while delivering stronger top-line growth.

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Risks to this strategy include Nike successfully turning around through aggressive restructuring or a surprise demand surge, or Deckers getting hit harder by tariffs despite its financial strength. Still, with DECK undervalued and NKE’s prolonged downturn suggesting capitulation, the spread between the two could widen further in favor of this trade.

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Because pairs trades typically take time to play out and valuation gaps can reflect unknown factors, using positive carry options strategies is prudent. Selling upside call spreads in Nike and selling downside cash-secured puts or put credit spreads in Deckers are ways to structure this trade while managing risk.

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