Heavily Shorted Under Armour Stock Soars Ahead of Earnings

UAA shares have a volatile post-earnings trading history

Jul 31, 2017 at 3:28 PM
facebook twitter linkedin


It's set to be another busy week of corporate earnings reports, with athletic apparel retailer Under Armour Inc (NYSE:UAA) due to step into the spotlight ahead of tomorrow's open. Ahead of the event, the security is one of the best stocks on the S&P 500 Index (SPX) -- trading up 4.5% at $20.31, after Jefferies said they are "buyers into the print," given how shorted UAA stock is and how bearish analysts are. 

Specifically, 54.67 million UAA shares are sold short -- nearly 30% of the available float, and the most since March 2016 -- 13 times the average daily pace of trading. Plus, of the 32 analysts covering Under Armour, 27 maintain a "hold" or "strong sell" suggestion, while the average 12-month price target of $21.50 stands at a slim 6.2% premium to the equity's current price.

Options traders, on the other hand, have been buying to open calls over puts at a near-annual-high clip in the weeks leading up to tomorrow's results. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), UAA's 10-day call/put volume ratio of 3.36 ranks just 10 percentage points from a 52-week peak.

It's likely some of this activity -- particularly at out-of-the-money strikes -- is a result of short sellers hedging against any earnings-induced upside. Regardless, it's getting expensive to buy premium on UAA ahead of earnings, historically speaking. Today, the equity's 30-day at-the-money implied volatility is up 9.1% to 60.5%, in the 100th annual percentile. In other words, elevated volatility expectations are being priced in to short-term UAA options.

This shouldn't be too surprising, given the post-earnings volatility Under Armour's Class C shares have experienced in the session subsequent to earnings. In January, for instance, UAA gapped 25.7% lower the session after earnings, while the stock surged 9.9% in April. This time around, the options market is pricing in an 18.6% swing, regardless of direction.

A move to the upside could have UAA breaking above several layers of technical resistance, including the $20.90 region -- home to a 50% Fibonacci retracement of the stock's May-to-June surge, as well as its 40-day moving average. Just above here is the $22 neighborhood, which is roughly equivalent to a 61.8% retracement of UAA stock's 2009-2015 rally. Conversely, a move of this magnitude to the downside would send the shares tumbling to territory not seen since July 2013.

uaa stock daily price chart july 31

Celebrate 40 Years of Schaeffer's With 4 FREE Stock Picks!


 




 
Special Offers from Schaeffer's Trading Partners