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
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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

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