It has been a tough game of late for fans of Under Armour (UA), but shares of UA now look ready for a rebound.
As a trader, and in recent past discussions of Under Armour, I’ve been a steadfast bear of UA stock.
Most recently, in early November overall rich metrics at Under Armour — compared to peers like Nike (NKE), Adidas (ADDDF), Columbian Sportswear (COLM), Lululemon, (LULU) and Skechers (SKX) — supported shorting UA stock.
At the same time, I made a point of emphasizing there’s nothing wrong with the Under Armour product and that I understood being a fan of the UA brand.
The fact is, Under Armour has enjoyed some big contract wins of late and enjoys an increasingly strong bullpen of celebrity endorsements. Also, UA offers a terrific line of athletic apparel and products for everyone from professional players down to weekend warriors.
Now as we enter 2016 and following some decent slimming down on the price chart, shares of UA look more ready for fans of Under Armour to try on as investors.
UA Stock Daily Chart
Click to Enlarge
As of last week, shares of UA have corrected more than 20% while establishing a price undercut of a weak-and-steep former sixth base count. And that’s great news for bullish fans of UA!
Why, you ask?
First, this means UA has completed a healthy corrective move typical of growth stocks during larger and longer bull runs.
Secondly, and as our annotated chart shows, the price action in UA has effectively reset the base count from an unstable sixth (V-shaped) base to a fresh base count of one.
And from Tuesday’s close of $82.25, if shares of UA move up less than 1% and above $83, fans of UA will have weekly chart confirmation for a playable doji candlestick low to position off.
UA Stock Bull Call Spread
Given the discussed expectations that a bottom is in place if UA is able to rally through $83, I like the February $82.50/$90 bull call spread.
This particular UA spread limits risk to the price paid and reduces both time decay and volatility risks associated with holding an outright long-call position.
Based on a current midmarket price of $2.85 and starting directional risk (i.e. delta) of 25 cents per point move in UA, a trader could expect to pay roughly $3.05 – $3.15 near the $83 level if that price was used as a weekly technical trigger to execute this bullish vertical.
An earnings date hasn’t been confirmed yet, but given the last report was in late October, late January or maybe early February means this UA spread will still be in play.
Of course, if there’s a technical injury to UA’s described bottom — or, more optimistically, a nice rebound prior to earnings — we’d certainly cheer that action as well.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
