Under Armour Inc (UA) Stock Smacked Into a Critical Test

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Since cratering on earnings, Under Armour Inc (NYSE:UA) stock has been trying to find its footings. And while it’s succeeded in carving out a sideways base, the depths continue to beckon. The action in UA stock bears close watching — particularly if today’s trading is a sign of things to come.

UA
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Source: OptionsAnalytix

The $30 level has stood tall during Under Armour’s post-earnings meandering. Any and all sell-offs have been halted at this support zone.

Before today, that is.

UA stock fell as low as $29.60 during this morning’s trading session in what could be a trade-worthy breakdown.

When a stock is mired in a trading range, speculators often wait for the floor or ceiling of the range to fail before sallying forth with directional bets. Today’s potential failure of $30 to provide support for Under Armour stock is telling. Traders looking for further confirmation could wait until days end to see if shares close below it. There’s always a chance this morning’s drop was a feint sucking in over-eager bears.

Whether the breakdown sticks in the near-term remains to be seen. But one thing is assured — UA stock is steeped in a downtrend completed with descending 200-day and 50-day moving averages.

With heaps of resistance levels looming overhead, prudence dictates viewing any and all future rebounds with skepticism.

How to Trade UA Stock Here

Trade 1: With earnings fading in the distance, implied volatility for Under Armour options has been brought low. And that means contracts can be snatched up on the cheap. Traders looking to capitalize on downside follow-through to today’s breakdown should take a good look at buying the Jan $30 puts.

Right now they can be purchased for $1.60. The risk is limited to the initial debit and will be forfeited if UA stock sits above $30 at expiration. The max reward is limited only by the stock falling to zero.

Trade 2: A second, more conservative alternative is to buy the Jan $30/$27.50 put spread. Instead of just purchasing the Jan 30 put, you could also sell the Jan $27.50 put against it for 55 cents. The net cost (and therefore risk) would fall from $1.60 to $1.05.

In exchange for the cost reduction, the put spread does cap your profit to the distance between strikes minus the net debit, or $1.45. This max profit will be captured if UA stock can fall below $27.50 by expiration.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/12/under-armour-inc-ua-stock-critical-test/.

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