OptionsHouse

Options Trading News

October 25, 2012  Thu 2:45 AM CT

UA: SEE CHART GET CHAIN FIND STRATEGIES
Investors don't want to lose their shirts when Under Armour reports earnings results later this morning.

optionMONSTER's Depth Charge monitoring program detected the purchase of 3,000 November 57.50 puts for $3.50. Equal-sized blocks were sold at the same time in the November 52.50 puts for $1.40 and the November 62.50 calls for $0.90. Volume was more than twice open interest at all three strikes, indicating new activity.

The three-pronged position cost $1.20 and will earn a maximum profit of 317 percent if the maker of athletic clothing closes at $52.50 or lower on expiration. The trader will also be forced to sell stock for $62.50 if it goes above that level, which he or she may be willing to do.

UA closed at $56.62, down 1.43 percent yesterday but up more than 50 percent so far this year. Quarterly results have consistently beaten estimates, and yesterday's option trade will provide a hedge in the weeks following today's quarterly release.

The strategy combines elements of a collar with a bearish put spread. Selling more contracts than were bought lowered the cost basis but places restrictions on performance. To the downside, for instance, the trade won't make any money below $52.50; to the upside, it will relinquish any gains on the stock above $62.50. (See our Education section)

Given that UA has never traded above $61, the trader may be willing to accept that as the maximum profit range and be more worried about a pullback. (See our Education section for more on how calls and puts can help you achieve trading objectives.)

Yesterday's trade pushed total option volumes in the stock to 11 times greater than average, according to the Depth Charge.
Share this article with your friends


Related Stories

UA

Traders bet on floor in Under Armour

February 17, 2015

The athletic-apparel company bounced twice at the same level in January but appears to be facing resistance near current prices.

OptionsHouse

TRADING WEEKLY OPTIONS

The fastest money in the market
View full report »

Premium Services

Webinar Recording

Turbo Charge Your Trading Profits

Education & Strategy

Gamma

As we continue to discuss the Greeks, we come to the first of the strike based Greeks called Gamma. Gamma is known as the second derivative, while delta is the first.

View more education articles »