“Sell in May and go away?” Maybe if you’re looking at the broader market. If you’re a fan of losing streaks ending and rebound plays, however, Under Armour Inc (NYSE:UAA) is finally shaping up. That goes for UAA both on and off the stock chart. Let me explain.
UAA stock has had a rough go of it the last couple years with its core athletics apparel business finding chinks in the proverbial armor — as well finding investors willing, let alone excited to don the UAA ticker in their portfolios.
The good news is despite a still fairly critical and bearish narrative that Under Armour has seen its best days come and go, it’s not a ‘game over’ scenario. In fact, the situation could finally be improving for UAA and its shareholders.
Under Armour of course still faces tough competition from Nike Inc (NYSE:NKE), Adidas AG (ADR) (OTCMKTS:ADDYY) and fast-casual athletics. And truthfully, increased costs to remain relevant with consumers within this niche retail game aren’t likely to improve anytime soon.
But one-time and fairly menacing distribution headaches are being unwound. That’s good news. Whether you like it or not, a pro-Trump misstep from CEO Kevin Plank, whose comments didn’t exactly jibe with Under Armour’s star endorsement contracts, are all but forgotten.
And now, following last week’s surprise earnings beat, intact guidance and generally better-than-feared results, bulls waiting on the sidelines have some incentive to take a flyer on UAA stock.
UAA Stock Monthly Chart
Click to Enlarge
Specifically, following a couple debilitating bearish earnings reactions over the past year, a nice-size upside reaction in Under Armour shares helped confirm an oversold monthly hammer bottom that formed outside the monthly Bollinger Band.
In conjunction with a stochastics indicator that’s oversold, but curling higher and price action that loosely held onto the 62% retracement level from the 2009 financial crisis; UAA stock bulls with a contrarian lean have some decent reasons to come off the bench.
UAA Bullish Long Call Strategy
After reviewing the UAA options board, the “keep it simple” method with an out-of-the-money call option is a preferred position in lieu of UAA stock. Specifically, the July $22.50 call for 40 cents or better.
Why a long call strategy like this one? For one, premiums are statistically and relatively cheap right now after an earnings crush in implied volatility. That of course favors a straight-up call purchase. As well, the next available strike in July stationed at $25 isn’t worth the reduction in premium at just 11 cents.
Secondly, the July contract gives the trader sufficient time to play a rebound in UAA stock from a simple pullback pattern of four days on the daily chart, without worrying about time decay.
Next, if our read on the technical picture is reaffirmed anytime soon, this particular call should have no trouble being a slam dunk. The strike is stationed just above the recent high of $22.12 and in great position for an offensive move by bulls if they enter into a massive price gap of around $6 in width.
Of course, in the unlikely event the former bearish gap is filled during the life of this call, the profit would be more of a grand slam than a slam dunk in one’s trading account! Bottom line though, if the bears still wind up with control of UAA stock, this type purchase doesn’t cost an arm or a leg.
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.
