Don’t look now, but away from the headlines Under Armour, Inc. (NYSE:UAA) is quickly shaping up as a stock showing championship form in 2018. But for Under Armour stock investors wanting both a strong defense and offensive line, a bull call strategy is the way to suit up to play in today’s game. Let me explain.
The broader market scored a nice single Wednesday as the S&P 500 pieced together a gain of 1%. Behind the action, macro-driven trade war concerns eased as bargain-hunting (the presumptive game of choice for investors taught to buy the dip during a historic bull run) made its return after a short time on the bench. Comparatively, the market’s price action paled to UAA’s performance on the session.
Shares of Under Armour jumped higher by 6.36% to a seven-week high. It’s UAA’s highest stock price since the immediate aftermath of a mixed, but mostly better-than-expected quarterly report announced in early February.
Other than having the broader market’s support, Under Armour stock rallied without any company-specific drivers. That may not sit well with some bulls and bears wanting to handicap the price action with new information. Considering Wall Street is known for delivering less-than-timely scouting reports on hot prospects in an uneven playing field, the macro rise in UAA isn’t necessarily bad.
Under Armour Stock Daily Chart
Since last writing a cautiously upbeat article on Under Armour following earnings, bulls in UAA stock have been tested on more than a few occasions and prevailed. And now the successful fending off of bearish operators has turned decidedly bullish on the UAA price chart.
By Wednesday’s closing bell Under Armour shares have cleanly broke above 200-day simple moving average resistance while also confirming a newly-formed uptrend. Net, net — and coupled with still high short interest of nearly 17% — if I were to place a bet on UAA, I’d put my money on a continued press by bulls and perhaps even a championship style 2018 for shares.
Under Armour Stock Bull Call Spread
Reviewing UAA’s options and given our expectation for a building uptrend to continue, one favored spread combination is an out-of-the-money bull call spread. With shares at $17.89, the July $20/$22.50 call spread for 55 cents looks attractive.
Risk is limited to the smallish debit of around 3% of UAA stock risk. At the same time, if shares continue to improve technically, the trader can capture a very healthy $1.95 above $22.50 at expiration.
A vertical is also easy to adjust at favorable prices into other strategies such as a modified bullish fence or very low-to-no-risk bullish butterfly under certain game conditions. For instance, if UAA pulled back a couple percent, selling a put spread to establish the former strategy for a credit, is the kind of move that can prove very opportunistic.
Bottom line, a bull call spread is an excellent strategy for directionally motivated traders who appreciate the flexibility, the benefits of reducing and limiting dollar and Greek risks, and enjoy a nice return if the price objective is achieved.
Investment accounts under Christopher Tyler’s management currently own positions in Under Armour (UAA) and its derivatives. 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.
