Dear Momentum Options Subscriber,
I have always admired Under Armour (UA) and the fact that it is chasing the 800-pound gorilla in the space — Nike (NKE) — while building its own brand. However, on a technical level, UA shares could be headed towards a backtest to $35-$32.50.
Although Under Armour’s earnings aren’t due to be released until the end of the month, Nike’s recent report may have given investors a hint about UA’s upcoming quarter. The company reported a blowout quarter, as earnings topped expectations by $0.17 a share, while revenue of $9.06 billion also beat forecasts. However, NKE shares have been pulling back following the news, as the company lowered its current-quarter margin forecasts.
The chart for NKE shows that there is continued risk to $50 following the close below $52.50, and analysts have been talking about nibbling on the stock on a possible backtest to that level. Personally, I want to wait and see if $47.50 comes into play on a drop below the $50 level or if the stock is able to build a base of support there. Resistance is at $52.50-$53 over the near term.
I’m not sure if UA will face the same headwinds going forward, but a close below $37.50 should get $36-$35 in play. Resistance is at $39.50-$40.
Bearish traders could target the UA October 38 puts (UA161021P00038000, $0.80, up $0.05) on continued weakness and a move below $38.25-$38 this week. These options expire in less than three weeks, which makes this a riskier play, as earnings won’t be announced until afterwards. An earnings miss or lowered guidance could have the same effect as it did on NKE shares.
If the $38 levels holds until Oct. 21, these options would expire worthless. If shares trade down to $37.20 by this date, technically, the aforementioned trade would break even. If shares test $36.80, the trade would return 50% and, at $36.40, the options would return 100%.
The UA November 37.50 puts (UA161118P00037500, $1.75, up $0.05) would allow a bearish trade an additional month to play out, and I like these options slightly more despite the higher premium. A 100% return would occur if shares trade below $34 by Nov. 18, as these options would be $3.50 in the money.
Let’s see how this week and next play out for shares of UA before taking action, but I could target the UA November 37.50 puts as an official trade if shares close below $38-$37.50.
Turning our attention to the broader market, the Dow is gaining 114 points to 18,282, while the S&P 500 is higher by 11 points to 2,161. The Nasdaq is up 34 points to 5,329, and the Russell 2000 is adding 13 points to 1,253.
I have updated our current trades below, so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 74-25 (75%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
All prices given in this update are current as of 1:40 p.m. EST.
I hereby disclose that I will be participating in the following trade(s).
Kroger (KR, $29.00, flat)
KR November 27.50 puts (KR161118P00027500, $0.45, down $0.10)
Entry Price: $0.50 (10/4/2016)
Exit Target: $1.00
Stop Target: None
Action: Support is at $28.50-$28. Resistance is at $29.25-$29.50.
Halozyme Therapeutics (HALO, $12.28, up $0.42)
HALO November 13 calls (HALO161118C00013000, $0.85, up $0.05)
Entry Price: $1.07 (9/27/2016)
Exit Target: $2.15
Stop Target: $0.55 (Stop Limit)
Action: Resistance is at $12.25-$12.50. Near-term support is at $12-$11.75.
Goodyear Tire & Rubber (GT, $32.88, up $0.65)
GT October 33 calls (GT161021C00033000, $0.69, up $0.23)
Entry Price: $0.75 (9/22/2016)
Exit Target: $1.50
Stop Target: $0.30 (Stop Limit)
Action: Resistance is at $32.75-$33. Support is at $32.25-$32.
Viavi Solutions (VIAV, $7.39, up $0.15)
VIAV December 8 calls (VIAV161216C00008000, $0.22, flat)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: $0.15 (Stop Limit)
Action: Resistance is at $7.45-$7.50 and the 50-day moving average. Support is at $7.25-$7.20.
Editor and Chief Options Strategist