It’s been a downhill sprint for Under Armour Corp (NYSE:UAA, NYSE:UA) and its investors. But while there are hurdles to clear — with pessimism heavier than a 400 lb. linebacker — it’s time to suit up for a quick offensive play in UA stock using a long call strategy.
Let me explain.
Puns aside, it’s been ugly for UA stock. I’m sure that’s not new information for anyone with even a passing interest in the once once-red-hot athletics upstart. Just in the past two weeks alone and following the company’s disappointing quarterly results and outlook, shares were sacked for more than 21% to hit fresh all-time crimson red lows.
InvestorPlace’s Laura Hoy does a nice job of detailing Under Armour’s woes on items from dropping the ball in North America to a management team that appears to be on the roster for Wall Street’s bears given its disappointing misstep into the wearables market — and now, plans to build “the greatest retail store in the world” by 2019. That’s an anti-slam dunk if ever!
Throw in UA stock’s one-two punch of waning appeal with millennials and backlash earlier this year from key endorsers like Steph Curry if you want more reasons to worry about Under Armour’s prospects.
Then toss in competition from the right field with the likes of Adidas ag (ADR) (OTCMKTS:ADDYY) and Nike Inc (NYSE:NKE), the left field and all those knock-offs—and it’s easy to dis-and-dislike Under Armour at the same time.
Now for the other pitch. With caveats in plain view, the obvious fact management still hasn’t figured out how it’s going to turn a losing game around and UA stock having all but lost its analyst cheering section to a popular bear contingency — I believe it’s time to propose a contrarian rebound play.
UA Stock Weekly Chart
Click to Enlarge
As quipped at above, it’s been a downhill sprint in UA stock and there’s little reason to think shares are going to simply jump higher from here.
Having said that, with the bearishness obviously thick off and on the chart and shares putting together a weekly candlestick reversal signal this week — trying on UA stock with a limited-risk position looks interesting.
UA Stock Long Call Strategy
Reviewing the UA options board and premiums at the low end of their 52-week trading range and currently below the underlying stock volatility, the January $12.50 call looks attractive.
With shares of Under Armour at $11.11, the out-of-the-money call is priced at 35 cents.
The debit is the equivalent of about 3.5% stock risk for the two-plus month holding period. That’s very attractive considering last week’s pivot low is a bit more than 7% below the current price in UA stock.
With time decay not yet a concern (and the ability to have a well-priced and limited-risk play through the holiday-selling season), it’s not a slam dunk … but it is a nice lay-up for would-be bulls.
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!
More From InvestorPlace
- 7 Best Dividend Funds for Retirement
- Profit From the Bank of America Corp Stock Rally
- The 10 Best Mutual Funds to Buy for 2018