Under Armour Inc (UA) Nosedive Draws Fresh Batch of Option Bears

After two weeks of heavy call buying, long Under Armour Inc (NYSE:UA) puts are now seeing action

Nov 18, 2016 at 2:13 PM
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Call buying has surged on Under Armour Inc (NYSE:UA) following the stock's post-earnings sell-off in late October. The stock's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at an annual high of 5.09. The most popular option during this time, based on open interest added, was the December 40 call, which saw some buy-to-open activity, according to the major options exchanges. While this might seem bullish on the surface, a 16.4% increase in short interest during the past two reporting periods suggests this could also be the result of short sellers hedging their bearish bets with call options. 

It's a different setup in today's trading, however, as UA sells off on reports Foot Locker, Inc. (NYSE:FL) noted weak initial sales of Under Armour's latest Steph Curry shoe in its earnings call. At last check, put options were trading at twice the expected rate -- with around 18,400 contracts on the tape -- and the most popular strike by far is the December 30 put. Traders are buying to open positions here, betting on UA falling below $30 before the close on Friday, Dec. 16, when the options expire. UA hasn't traded below $30 since July 2014. 

It's worth noting that UA's Schaeffer's Volatility Index (SVI) of 31% ranks in just the 1st percentile of its 12-month range. This suggests that premium on UA's near-term options is relatively muted at the moment -- from a volatility perspective -- a promising sign for call or put buyers.

Pessimism is evident in other areas of Wall Street, as well -- though that's not exactly surprising, since Under Armour Inc (NYSE:UA) has now lost one-third of its value in the past 12 months, following today's 5.2% drop to trade at $30.63. At the moment, 17 of 29 brokerage firms rate UA stock a "hold" or "strong sell." However, the shares' consensus 12-month price target comes in at an elevated $38.17, though, so it wouldn't be surprising to see price-target cuts come down the pike. 

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