I have always admired Under Armour Inc (NYSE:UA) and the fact that it is chasing the 800-pound gorilla in the space — Nike Inc (NYSE:NKE) — while building its own brand. However, on a technical level, UA stock could be headed toward a backtest to $35-$32.50.
Under Armour’s earnings aren’t due to be released until the end of the month. However, Nike’s recent report may have given investors a hint about UA’s upcoming quarter.
Nike reported a blowout quarter in which earnings topped expectations by 17 cents per share and revenue of $9.06 billion also beat forecasts. However, NKE shares have pulled back since then, as the company lowered its current-quarter margin forecasts.
Nike’s stock chart shows that there is continued risk to $50 following the close below $52.50, and analysts have been talking about nibbling on the stock on a possible backtest to that level. Personally, I want to wait and see if $47.50 comes into play on a drop below the $50 level or if the stock is able to build a base of support there.
Resistance is at $52.50-$53 over the near-term.
I’m not sure if Under Armour stock will face the same headwinds going forward, but a close below $37.50 should get $36-$35 in play. Resistance is at $39.50-$40.
2 Options Trades on UA Stock
Bearish traders could target the UA Oct $38 puts (UA161021P00038000, 80 cents, up 5 cents) on continued weakness and a move below $38.25-$38 this week. These options expire in less than three weeks, which makes this a riskier play, as earnings won’t be announced until afterwards. An earnings miss or lowered guidance could have the same effect as it did on NKE shares.
If the $38 levels holds until Oct. 21, these options would expire worthless. If UA stock trades down to $37.20 by this date, technically, the aforementioned trade would break even. If shares test $36.80, the trade would return 50% and, at $36.40, the options would return 100%.
The UA Nov $37.50 puts (UA161118P00037500, $1.75, up 5 cents) would allow a bearish trade an additional month to play out, and I like these options slightly more despite the higher premium. A 100% return would occur if shares trade below $34 by Nov. 18, as these options would be $3.50 in the money.
I want to see how this week and next play out for shares of UA before taking action, but the UA Nov $37.50 puts might make for a good play if shares close below $38-$37.50.
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