Option Bulls Bulk Up On Under Armour Inc (UA), Nike Inc (NKE)

Under Armour Inc (UA) and Nike Inc (NKE) are heading higher, attracting a rare crop of option bulls

by Andrea Kramer

Published on Sep 16, 2015 at 2:11 PM
Updated on Jun 24, 2020 at 10:16 AM

Athletic apparel maker Under Armour Inc (NYSE:UA) is exploring all-time highs, peaking at $103.25 today. The shares were last seen 3.2% higher at $101.80, thanks to an ambitious revenue target, and option bulls are betting on even higher triple-digit territory for the stock. Likewise, sector peer Nike Inc (NYSE:NKE) is also moving higher -- and attracting optimists in both the options pits and the analyst arena.

At its investor day meeting, UA projected revenue to reach $7.5 billion by 2018, topping internal forecasts. As the stock assails new heights, intraday call volume has rocketed to four times the norm, with roughly 15,000 contracts exchanged.

It looks like bulls are buying to open the October 100 call -- most active thus far, with more than 2,300 contracts traded. By purchasing the calls at a volume-weighted average price (VWAP) of $4.55, the buyers will make money if UA topples $104.55 (strike plus VWAP) by the close on Friday, Oct. 16, when back-month options expire.

Shorter-term bulls are apparently buying to open the September 102 call at a VWAP of $1.26, making at-expiration breakeven $103.26 -- a penny above today's high. These calls expire at Friday's close, and if UA remains beneath the strike through the end of the week, the most the buyers will lose is the initial premium paid. 

Today's preference for long calls marks a shift in sentiment among UA's options crowd. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.38 stands higher than 98% of all other readings from the past year. In other words, UA traders have picked up puts over calls at a near annual-high clip during the past two weeks.

Whatever side of the fence they're on, now is a good time to be a short-term UA option buyer. The stock's 30-day at-the-money implied volatility sits at 32.5% -- in the 58th percentile of its annual range, and much lower than the equity's 30-day historical volatility of 46.6%.

NKE is up 1.3% at $115.35, thanks to a halo lift from Under Armour Inc (NYSE:UA) and a price-target hike to $125 from $120 at Deutsche Bank -- in uncharted territory for the shares. As with UA, NKE's options crowd is showing a potential change of heart, with intraday call volume running at 1.6 times the average.

The equity's at-the-money September 115 call is most popular, and it seems traders are buying the contracts to open at a VWAP of $1.09. In order to profit, the buyers need NKE to topple $116.09 by Friday's close. The stock peaked at $115.50 today.

On the ISE, CBOE, and PHLX, NKE sports a 50-day put/call volume ratio of 1.13 -- just 2 percentage points from an annual peak. In simpler terms, buyers have rarely favored NKE puts over calls by a wider margin in the past year. In that same vein, short interest on NKE soared 46.7% during the past two reporting periods. An unwinding of skepticism on the Street could add fuel to Nike Inc's (NYSE:NKE) fire.

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