Under Armour Inc: Lace Up for a Breakout in UA Stock

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With the stock rally entering the late innings attractive opportunities are becoming scarce. Traders thrive on quality setups boasting low-risk, high-reward payouts. The kind that allow for multiple losses while still generating profitable results in the end.

UA Stock: Lace Up for a Breakout in Under Armour

While scarce, a fortunate few sweet setups yet remain. Chief among them is Under Armour Inc (UA).

The slide that ushered UA stock into 2016 was arrested in late-January following a much needed earnings beat. One good enough to deliver a vicious one day rip on monster volume.

Since then UA has followed the bulls’ blueprint to a “T”. Buying aggression has been on the rise creating a pair of higher pivot lows. The price action in UA stock has been healthy enough to turn both the 20- and 50-day moving averages higher.

Distribution days have also dried up in recent weeks showing a lack of conviction from major sellers. Current traders are obsessing over resistance at $86.

The ceiling has thus far stymied three rally attempts. But, with broad market strength persisting and UA technicals turning bullish an eventual breach of this zone is inevitable. And therein lies opportunity.

UA chart
Click to Enlarge
Source: OptionsAnalytix

It’s worth mentioning fellow sportswear and apparel company, Nike (NKE), scored a breakout of its own this week.

And with UA boasting a similar chart pattern, I consider that a good omen.

UA Call Spreads for Profits

If you’re looking for a limited risk, low cost way to play the breakout in Under Armour, look no further than the bull call spread. To provide ample time for UA stock to make the necessary journey to the higher strike price of the spread, we’ll use July options.

Buy the July $85/$95 call spread for $4. To be clear, the spread consists of buying to open the July $85 call while selling to open the July $95 call for a net debit of $4 or better. The max loss is limited to the initial cost and will be forfeited if UA stock sits below $85 at expiration.

The max gain is limited to the distance between strikes minus the net debit, or $6, and will be captured if UA stock price sits above $95 at expiration.

At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/03/under-armour-a-breakout-beckons-in-ua-stock/.

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