Options Players Brace For a Rocky Earnings Report From Under Armour

Short-term options traders are unusually put-heavy toward UAA ahead of tomorrow's earnings event

Oct 30, 2017 at 12:24 PM
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Third-quarter earnings season continues full speed ahead this week, with stocks like Diamond Offshore Drilling Inc (NYSE:DO) climbing higher on an earnings beat. Tomorrow morning, traders will digest results from sports apparel retailer Under Armour Inc (NYSE:UAA). Here's a closer look at UAA stock ahead of earnings, and how options traders have been positioning themselves on the retailer's shares.

Options Market Predicts Big Earnings Swing For UAA 

Under Armour stock has struggled in 2017, down 44.8% year-to-date. The shares touched a four-year low of $15.53 earlier, after BofA-Merrill Lynch downgraded the stock to "underperform" from "neutral," and nearly halved its price target to $12 from $21. Despite the bearish analyst attention, the security has reversed earlier losses to trade 1.6% higher at $16.27. Under Armour stock could be vulnerable to another drop after tomorrow's earnings report, however, if past is precedent.

Historically, UAA shares have moved lower the day after two of the company's last three reports, with an average post-earnings move of 14.8%, regardless of the direction. After earnings in August, the stock dropped 8.6% in one day. This time around, the options market is pricing in a bigger-than-usual one-day swing of 20%, per at-the-money implied volatility data. A drop of this nature would send the security well below today's four-year low, to the $13 neighborhood.

Options Players Pounce on UAA Puts Ahead of Tomorrow's Earnings

Short-term options traders could be predicting a swing lower, as the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.11 ranks in the 84th annual percentile of its annual range, telling us that near-term speculators are more put-heavy than usual ahead of the earnings event.

What's more, the security's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and the NASDAQ OMX PHLX (PHLX) stands at 1.29 -- in the 82nd percentile of its annual range. In other words, options players have bought to open UAA puts relative to calls at a faster-than-usual clip during the past two weeks.

Analysts have also been rather bearish toward UAA stock ahead of the company's earnings report. In addition to today's downgrade, 28 of the 33 brokerage firms following the equity rate it a "hold" or "strong sell." Likewise, short interest accounts for more than 12% of Under Armour's total available float, representing three weeks' worth of pent-up buying demand, at UAA's average pace of trading.


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