How to Play the Under Armour Inc (UA) Stock Earnings Plunge

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Under Armour Inc (NYSE:UA) shares cratered 13% Tuesday after the company warned investors its future growth could slow. Cries of “abandon ship!” and “watch out below!” were heard echoing through the halls of Wall Street all day long.

On the bright side, the Baltimore-based sports clothing and accessories company was able to beat earnings and revenue estimates. UA stock’s earnings per share came in at 29 cents while revenue surpassed $1.47 billion.

Proving once again that investors care little about the past while obsessing over the future, the solid earnings beat failed to appease growth-obsessed shareholders.

The volume accompanying yesterday’s mass exodus was gigantic. By day’s end 58 million shares changed hands, making it the most active trading session since April 2014.

On the one hand, the magnitude of the damage inflicted coupled with the massive volume reeks of capitulation. Perhaps all the weak hands have now been shaken out and a short-term low is imminent for UA stock.

UA
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Source: OptionsAnalytix

On the other hand, the technical posture of Under Armour stinks to high heaven. It remains submerged beneath all major moving averages, signaling its trend is pointing lower on every single time frame.

Any and all rallies are suspect with such heavy supply looming overhead.

The UA Stock Option Trade

If you think slower growth continues to weigh on UA stock, consider selling out-of-the-money call spreads.

Provided Under Armour doesn’t recover significantly from here, the bear call spread will deliver a profit.

Sell the Dec $35/37.50 call spread for 47 cents or better. The max reward is limited to the initial 47 cents and will be captured if UA sits below $35 at expiration. The max risk is limited to the distance between the strikes minus the net credit, or $2.03, and will be forfeited if UA rises above $37.50 by expiration.

By risking $2.03 to capture 47 cents, the trade offers a potential 23% return on investment.

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/2016/10/under-armour-inc-ua-stock-earnings-ipmedia/.

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