Schaeffer's Trading Floor Blog

Bears Pile On Outperforming Under Armour Inc (UA)

Option traders, short sellers, and analysts are all skeptical of UA

by 3/26/2014 10:36 AM
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Bears have been pouring into Under Armour Inc's (NYSE:UA) options pits of late. During the past week on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE), the athletic apparel maker has seen more than 3,300 puts bought to open versus fewer than 700 calls. The result is a top-heavy five-day put/call volume ratio of 4.78.

Stepping back to gauge two weeks' worth of data -- including information from the NASDAQ OMX PHLX (PHLX) -- yields similar results. UA's 10-day ISE/CBOE/PHLX put/call volume ratio checks in at 2.31, with puts bought to open more than doubling calls in recent weeks. If that's not enough, this ratio sits just 2 percentage points from a 52-week high, indicating a healthier-than-usual appetite for bearish bets over bullish.

Things are no different outside of the options pits. Currently, 10.5% of Under Armour's total available float is sold short, which represents five sessions' worth of pent-up buying demand, at average daily volumes. Meanwhile, on Wall Street, 19 out of 26 covering analysts rate the shares a tepid "hold" or worse. Additionally, the stock's consensus 12-month price target of $106.30 is well below current trading levels.

It's difficult to understand why the outlook is so bleak on UA. After all, the shares have gained roughly 127% in the last year to trade at $115.43. What's more, the equity has outpaced the broader S&P 500 Index (SPX) by 31.5 percentage points during the previous 60 sessions.

From a contrarian perspective, all of this puts Under Armour Inc (NYSE:UA) in an ideal spot. Should option bears start hitting the exits, short sellers start covering, and/or analysts begin to change their tune, the technical outperformer could run even higher.


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