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Although the stock dropped to a six-month low on Thursday, Under Armour Inc (NYSE:UA - 46.86) option traders remained optimistic. The stock saw roughly 30,000 calls cross the tape -- almost 17 times its average daily call volume, and nearly three times the number of UA puts exchanged.
Most of the action transpired at the February 47.50 call, which saw more than 13,400 contracts change hands at a volume-weighted average price (VWAP) of $1.16. A healthy portion of the calls crossed at the ask price, and open interest skyrocketed by almost 11,700 contracts overnight, pointing to newly bought bullish bets.
The call buyers' goal is for UA to rebound north of $47.50 by the closing bell on Friday, Feb. 15, when the newly front-month contracts expire. More specifically, the buyers will reap a reward if UA topples the $48.66 level (strike plus VWAP) within the next three weeks. However, even if the stock resumes its recent retreat, the most the buyers can lose is the initial premium paid for the calls.
However, heading into UA's earnings release on Thursday, Jan. 31, the stock's front-month options are becoming more expensive. In fact, the equity's Schaeffer's Volatility Index (SVI) has ascended to 48% -- above 56% of all other readings in the past year. Or, in simpler terms, UA's front-month options are growing increasingly popular and, thus, more pricey.
From a sentiment standpoint, yesterday's appetite for bullish bets merely echoes the recent trend seen on the major options exchanges. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than three UA calls for every put during the past two weeks. What's more, this ratio registers in the 97th percentile of its annual range, suggesting option players are initiating bullish bets over bearish at a much faster-than-usual pace.
Technically speaking, it's been a rough ride for UA since tagging an all-time high of $60.96 in mid-September. The stock has been pressured steadily lower beneath its formerly supportive 10-week moving average, and fell to a six-month nadir of $44.32 yesterday after key executive Gene McCarthy tendered his resignation.