It has been a quick steal and press from bears in recent days for shares of Under Armour Inc (NYSE:UA, NYSE:UAA). But for contrarian-minded bullish investors, it’s time for a strategic and smartly placed offensive play based on the handicapping of a technical trifecta and an opportunistic options market in UA stock. Let me explain.
Just when it almost felt like those meddling bears were finally declawed and permanently benched away from the quoted price of UA stock, along comes another wave of bad press slamming the former athletics apparel growth play back into the dirt — it’s underwater by 4% in 2018.
The latest jab for Under Armour — a company struggling to reclaim its former glory after more than a couple missteps and competition from red hot Adidas AG (ADR) (OTCMKTS:ADDYY) and a reinvigorated Nike Inc (NYSE:NKE) — comes from analysts at Macquarie Group.
Led by analyst Laurent Vasilescu, the firm cut UA stock from neutral to underperform while slapping an outlier, below-the-market $8 price tag on shares.
The bearish call is based on the belief Under Armour will earn much less than previously forecast and see larger operating costs, weaker margins and reduced revenues, as well as potentially need to revise its credit agreement and raise capital.
Huh. I guess I’ll have to look past Mr. Vasilescu’s weak success rate of 50%, my own favorable impression of Under Armour products offered at Dick’s Sporting Goods Inc (NYSE:DKS) over the holidays and technicals that favor being a contrarian? Not!
It has been just more than a month since I last wrote about UA stock and shares are just pennies higher. However, Under Armour is in a much more defensive and some might say, losing game against the bears.
Shares of Under Armour have quickly given back the bulk of its decent-size gains within a developing uptrend off all-time lows and massive negative returns for UA stock investors the past couple years.
Currently the uptrend is in trouble depending on how traders define such patterns. Yet there is some hope without necessarily relying on a Las Vegas long-shot situation to turn things around for bullish UA stock investors.
The technical trifecta I’m seeing consists of the 50-day simple moving average, 62% retracement level and oodles of negative sentiment which are in play. In case those supports fail and a potential bearish flag prevails, UA stock’s options can help minimize and limit risk so it’s not a “game over” situation for bulls.
UA Stock Long Butterfly Strategy
Reviewing UA’s options, one favored play for bulls is buying the Feb $15/$17.50/$20 call butterfly for up to 15 cents with shares at $12.48. The spread offers a healthy profit zone from $15.15 to $19.85 with just over 1% UA stock risk, as well as a max payout of $2.35 at $17.50 on expiration.
The risk with this type position is the small debit is fully at risk below $15 or above $20. Thus, if a potential rally is too weak or if a Hail Mary style price spike is witnessed in UA stock, this trader will sacrifice the cost of the butterfly.
Bottom line though, if you’re like me and see the opportunity for an earnings surprise or the worst being baked into prices already and recognizing UA stock getting near $20 in the near-term is more than a long-shot — this very-low-cost idea may be worth playing while everyone wagers on the bears.
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.
