With March Madness underway in more than one way for Under Armour Inc (NYSE:UAA, NYSE:UA), it might be tempting to take a long-shot bet on UAA stock. But from where we’re sitting, if you’re in it to win it, the home-team-favorite bears still look worth placing a small side bet on. Let me explain.
A tough 2016 has continued to follow through as a headache for UAA stock and its shareholders. The one-time heralded athletics upstart is off nearly 35% and a rough and tumble 64% from its mid-2015 all-time-highs of $52.95. But as I recently wrote, the slump in UAA is not without merit.
Bottom line, from distribution headaches, increasingly tough competition from Nike Inc (NYSE:NKE), Adidas AG (ADR) (OTCMKTS:ADDYY) and fast-casual athletics, as well as associated escalating costs to remain relevant, Under Armour has fallen from grace with growth traders — and most value traders are still viewing the game as spectators.
There was some news on Tuesday for UAA stock which tried to incite a cheer or two from investors.
As part of its initiative to keep the brand in consumers’ collective consciousness, it was announced Under Armour is outfitting 12 collegiate teams, a record for the company, in the March Madness NCAA basketball tournament.
Under Armour is in damage control mode after a pro-Donald-Trump misstep from CEO Kevin Plank earlier this year caused some of its most influential endorsers to speak out against the company and state its vision is not aligned with their core values.
Net, net though — so far, any attempts at good news has resulted in more of a failed rim shot than a slam dunk with investors. At Tuesday’s close, UAA stock shed 0.16% and roughly 1% from its year-to-date low.
Under Armour Weekly Chart
Looking at UAA stock’s weekly chart, it’s apparent the bears are in control. In the last couple weeks, Under Armour has broken to the downside from a congestion pattern which failed to hold support at the key 62% retracement level dating back to the low of the financial crisis in 2009.
Many technicians see the 62% level as the last line of defense, which, if it fails — as it has in UAA stock — supports a bearish revisit of the cycle lows. Coupled with stochastics which have turned lower and UAA stock being inside the lower and downward pointing Bollinger band, there doesn’t appear to be any immediate support or reason to buy Under Armour.
When will the March Madness go away?
The larger monthly perspective is looking oversold. However, I’d wait for one last bout of aggressive towel tossing — or better yet, confirmation of a reversal candle on the weekly chart that’s accompanied by a more bull-friendly stochastics — before suiting up for the bulls.
UAA Stock Long Put Butterfly Strategy
Given our view and much like with our analysis on UAA stock a couple weeks back, a lower-risk, bearishly positioned butterfly looks appropriate.
If UAA shares don’t continue to fall or overshoot the target, it’s mostly a “no harm, no foul” result. The play ultimately leaves today’s bearish trader plenty of powder in the keg if they finally see a stronger, long-side setup in Under Armour.
Reviewing the board, the weeklys 24 March $19/$18.50/$18 put butterfly is priced for 10 cents with shares at $19.02. The short-term position risks the entire debit if shares fail to move past $19 or slide below $18 over the next eight trading sessions.
At expiration, if UAA is between $18.10 and $18.90, some profit will avail itself. The max payout of 40 cents occurs at the sold $18.50 put. This is the result of the embedded bear put spread expanding to 50 cents, the lower bull put spread going out worthless and factoring in the initial cost of the butterfly.
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.