Stock Analysis: Is Under Armour (UA) Set to Reach New Highs? A Spread Strategy for that Move

On October 25, 2011, Baltimore-based Under Armour (NYSE: UA) reported third quarter net revenues growth of 42%, and raised 2011 net revenues and Operating Income outlook. UA made a nice move on earnings on heavy volume, which is indicative of accumulation. UA is currently showing relative strength and has supported at every test of the 10sma. It is also displaying a nice flagging pattern, which is bullish.

If UA can take out the 87.40 highs made on 10/31, we may see new highs on the stock. A way to profit on this stock is to sell some out of the money (OTM) bull-put spreads. For example, sell 1 December 77.5 strike and buy the 75 strike for a net credit of $0.70, that’s risking $180 to make $70 by December expiration.

The 20dma is currently just around 78.25, and the 50dma is around 74.30. If UA breaks down at the 10sma (currently at 83), it may test support around 80.50, which coincides with previous resistance made between 9/16/11 and 9/20/11, and if that fails to hold, it should find support at the 20dma (around 78), which should be your stop loss. I only anticipate this huge move down to the 20dma if we experience another huge market selloff due to problems from the Eurozone.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

  

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