Under Armour stock was one of the hottest in the retail sector from 2012 to 2015, gaining nearly 400%. Since then it’s been a rough ride for the Baltimore company as its fortunes have fallen alongside the upheaval in the entire sector. On April 26th, on the eve of their latest earnings announcement, we checked in on the stock and entertained the possibility that that negative sentiment might have reached a turning point. We detailed a trade idea into the event for a defined risk bullish way to play for the stock to start to make gains from its washed out status in the high teens. Here was the original trade, from April 26th:
Stock Alternative in Lieu of 100 shares of UAA (19.75)
Buy the April28th 22.5 / July 20 vertical call calendar for 1.20
- Sell 1 April28th 22.5 call at .20
- Buy 1 July 20 call for 1.40
The idea was to fade the implied move on the event itself and position fro gains over the next few months. That was the correct idea as the stock gained on the event but the short call near term had enough room to expire worthless.
Following the initial move, with the stock then at 21.70, we were able to roll the trade and further reduce risk. Here was the update from April 28th:
ACTION – Sell the UAA July 25 calls at .25
New position: Long the UAA July 20/25 call spread for .95 (currently worth 1.90)
This trade now breaks even at 20.95 in July and can make up to 4.05 if the stock is at or above 25 on July expiration.
The good thing on that roll was being able to reduce overall risk to just .95. And that’s important because the stock got hit in the meantime and matched its lows of 2017. But since that low on 5/19 the stock has picked up and is brraking out above the range that’s been established since its January gaps lower.
Now with the stock 23.10, the July 20/25 call spread is worth about 2.90 versus the original 1.20 at risk, and the .95 currently at risk.
That’s a nice gain and it probably makes sense to take the profits for those that were in for a short term bounce. For those looking to stay positioned for a big move higher, the trade can be closed and the profits used to buy the October 22.5/30 call spread for 2.00. That doesn’t book any of the current profits but you end up with a free call spread out to October with no risk, that can be worth up to 7.50.