Should Options Traders Take Aim at Under Armour Inc (UA)?

Data suggests Under Armour Inc (NYSE:UA) could be a strong play for bullish options traders

Aug 19, 2016 at 3:11 PM
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Last month, we called attention to athletic apparel stock Under Armour Inc's (NYSE:UA) previous third-quarter performances. To summarize, UA has historically outperformed considerably during the third quarter, averaging a gain of nearly 18%. Sure enough, the shares are already sporting a roughly 7% gain this quarter. With the stock moving higher again today alongside rival Nike Inc (NYSE:NKE), let's take a closer look at the data to see if UA could be an attractive target for options traders. 

Diving in, UA was last seen 2.1% higher at $42.95, as it continues to rebound following a post-earnings slide from late last month. To be more specific, the stock dropped from around $43 before earnings to almost $37 only a few sessions later. Despite paring these losses, the stock's record high of $54.70 from last September still represents a 27% premium to current levels.

Nonetheless, Under Armour's quarterly results -- which were negatively affected by Sports Authority's bankruptcy -- were met by price-target increases from a number of analysts in subsequent sessions, including D.A. Davidson, which set its target at $52. Not only that, but hedge fund Jana Partners picked up more than 250,000 shares earlier this week. 

There's room for more positive attention to come UA's way, too, especially if it continues to rise on the charts. By the numbers, nine brokerage firms still rate the stock a "hold" or "strong sell."

In the meantime, short sellers are hitting the exits. During the past two reporting periods, the number of UA shares controlled by short sellers fell by 18%. Almost 13% of the stock's float -- or seven days' worth of buying power, according to average trading volumes -- is still sold short, however. As such, the stock could benefit if these bears continue to cover their positions

Optimism is picking up in UA's options pits, as well. First of all, call open interest is only 2 percentage points from a 12-month high. Narrowing this down to options that expire within three months, UA speculators have been more call-skewed only 4% of the time in the past year. This is according to UA's Schaeffer's put/call open interest ratio (SOIR) of 0.69. 

Looking at data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), call buying has more than doubled put buying during the past 10 weeks. The resulting call/put volume ratio of 2.18 ranks in the high 91st annual percentile. Sure enough, calls are hot again today, accounting for nine of the 10 most popular strikes. 

Making Under Armour Inc (NYSE:UA) an even more attractive target for speculators, its options can seemingly be had for a relative bargain. This is according to the stock's Schaeffer's Volatility Index (SVI) of 28%, which is just 6 percentage points from a 12-month low, and its 30-day at-the-money implied volatility, which is just 2 percentage points from an annual low. In other words, the options market is pricing in low volatility expectations for UA options at the moment. Considering this, along with the potential for bullish analyst attention, the chance of a continued short squeeze, and the stock's history of outperforming in the third quarter, UA options appear rather enticing at the moment.

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