The bears are still busy working publicity at Under Armour Inc (NYSE:UAA, NYSE:UA). But with shares showing continued signs of a bottom on the price chart, it’s time for a second offensive play on UA stock to help profit from excessive pessimism with reduced and limited risk using Under Armour’s options market. Let me explain.
I believe at this point most investors are aware of UA stock’s problems off the price chart. But if there’s a doubt, there’s plenty of ink still slamming the company for all its flaws and the perceived problems that lay ahead.
From product missteps like the Curry 3, the failed HealthBox that went into cardiac arrest, inventory problems, competition from Adidas AG (ADR) (OTCMKTS:ADDYY) and Nike Inc (NYSE:NKE), a lack of appeal with Millennials and top brass defections — okay, we get it.
And we may as well throw in this year’s discontent from UA stock’s own celebrity endorsers, which honestly, also needs no additional press coverage at this point.
Personally, I can’t help but think most of the witch hunting bears are probably the same folks guilty of bombarding Under Armour with accolades a couple years ago when the company could simply do no wrong and extrapolating those results into upside price targets which never saw the light of day.
Bottom line, I’m still inclined to see UA stock as a contrarian rebound play near-term on the price chart — and probably a company which will also see another championship season down the road.
UA Stock Weekly Chart
It’s been four weeks since I last wrote about UA stock. On the price chart the period has translated into a handful of mostly tight doji-style candlesticks with a bullish lean as shares have gained about 11%.
The action in Under Armour shares also pretty much affirms our prior forecast that heavy bearishness and a couple broken downtrend lines would lend itself to shares gaining ground, but not sprinting higher.
What’s next for UA stock? I’m still inclined to go with a continued slow grind higher against a more vocal, but less-forceful bear camp.
UA Stock Long Butterfly Strategy
Last time, I laid out the case for purchasing the January $12.50 call for 35 cents. The contract is now priced for 65 cents and obviously a nice opportunity for bullish holders to adjust into a new position with less risk.
Reviewing UA’s options, one idea which also looks good for fresh entries, is buying the Jan $12.50/$15/$17.50 call butterfly for up to 40 cents. The spread offers a nice size bullish profit range from $12.90 to $17.10 with a max payout of $2.10 at $15 if shares landed on the short strike at expiration.
The downside, other than the 40 cents at risk below $12.50, is the pseudo-bullish trader is betting on a ceiling price in UA. Ultimately, if shares rally too strongly, there is a penalty of 40 cents above $17.50.
But, with this spread outside the earnings cycle, I like the possibility of UA being able to rally as much as 38% and net some type of profit while risking the equivalent of just 3.25% of UA stock through January expiration.
Investment accounts under Christopher Tyler’s management do not currently own positions in Under Armour or its derivatives, but may be compelled to suit up shortly! 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 and StockTwits and feel free to click here to learn more about how to design better positions using options!
