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Are Under Armour Bulls Buying Options Protection?


Under Armour's short-term options crowd hasn't been this put-biased in more than a year.

In spite of its longer-term uptrend, Under Armour Inc. (UA) has been heavily targeted by put players of late. In fact, the stock sports a 10-day put/call volume ratio of 2.09 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and Nasdaq OMX PHLX (PHLX), indicating that traders have bought to open more than two UA puts for every call during the past two weeks. What's more, this ratio stands just four percentage points from a 52-week peak, suggesting speculators are initiating bearish bets at a near annual-high clip.

Echoing that trend, UA saw roughly 11,000 puts change hands on Thursday -- more than three times its average daily put volume, and more than five times the number of UA calls exchanged. Most active was the out-of-the-money August 42.50 put, which saw open interest skyrocket by 4,500 contracts overnight. Digging even deeper, most of the action took place in one fell swoop at the ask price of $1.65, pointing to buy-to-open activity.

By purchasing the puts to open, the buyers have one of two motives: To bet on a breach of the $42.50 level within the next several weeks, or to protect a long stock position. If it's the latter, the UA shareholder's primary objective is still for the security to extend its long-term journey higher, but the 42.50-strike puts guarantee the least he receive for his stake is $42.50 per share, should the stock take a turn for the worse within the options' lifetime -- which encompasses UA's earnings release on July 24.

As alluded to earlier, though, UA puts were the options of choice long before yesterday. In fact, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.78 suggests puts nearly double calls among options expiring within three months. Plus, this ratio sits at a 12-month high, implying that near-term speculators haven't been more put-biased during the past year. However, peak put open interest in the front-month series rests at the July 45 strike, with nearly 4,000 contracts in residence. In the short term, this abundance of bearish bets could translate into a layer of options-related support for UA.

From a broader sentiment standpoint, the options crowd isn't the only group wary of UA. Short interest represents nearly a week's worth of pent-up buying demand, at the stock's average daily trading volume, and 14 out of 23 analysts maintain "hold" or worse ratings. Should UA extend its years-long climb, a short-covering situation or a round of bullish brokerage notes could translate into contrarian boons for the stock.

Right out of the gate, the shares of UA have added 1.3% to explore the $46.93 level. The equity has tacked on close to 30% since the start of the year, and has more than quadrupled over the past three years, thanks to support from its 10-month moving average.

This article by Andrea Kramer was originally published on Schaeffer's Investment Research.

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Twitter: @schaeffers
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