The Under Armour, Inc. (UA) Bull Call Calendar

Transcription

1 uly 27, 2015 The Signal Under Armour, Inc. (UA) Bull Call Calendar The Safe Option Strategy The Safe Option Strategy Ø BTO Oct15 $95.00 Strike Calls - $5.60 Debit Ø STO Sep15 $ Strike Calls $2.15 Credit Ø Total Debit $3.45 Per Share Ø Max Risk is $3.45 Per share Ø Limit Debit Order of $3.60 to open the trade Ø Target ROI is 25% Ø Max ROR 45% Ø Target time in trade is < 45 days Trade Explanation of the Bull Call Calendar Click on the link above to see the definition of the spread trade.

2 Company Technical s Summary This is a strong company with a very bright future. UA keeps moving up, and it keeps challenging its biggest rival, Nike. Because of the overall stagnation in the markets, we decided to place a trade which could still make us money in a flattening trend. Even though earnings was great, and guidance even better, we are playing this a little more conservative. subscribers own potential risk.2

3 The Primary Exit Plan Ø The primary exit is for the long call to gain value at a slightly faster pace than the short call does allowing us to exit the trade for about a 25% profit. We could also allow the short call to simply expire worthless (provided it stays out of the money between now and expiration). Either of these could happen if we get a steady slow bullish trend or even a stagnant to only slightly bullish trend. Because the difference in strike prices is greater than the net debit in the trade, being called out at the short call strike price would be great. It would guarantee a profit on the trade (45% in this case). Adjustment for Bearish Trend Ø If the stock price moves bearish and we begin to lose money on the long calls we could roll the short calls down in strike price and possibly to a different expiration week or month. This will take in a bigger credit against the long calls and if repeated two or three time with weekly or monthly options it could make the trade profitable. With the chosen strike prices and expiration months we would likely roll to weekly short calls, and down in strike if we saw the stock move below $92.50/share. We could continue to roll down and out with each expiring short option until we have reached a profit level we want, or a break even if we want to free the money in this trade up to be used elsewhere in our trading. subscribers own potential risk.3

4 Trade Updates NFLX ITM Bull Call (7/20) Our trade opened where we expected it, with a net debit of $3.25 per share. The trade is down now, due to the market pullback the past few days. No need to adjust now, but if the stock price moves down much farther, we will roll our short calls. FB Bull Put (7/13) Closed after one week for 20%. V Call Ratio Back Spread (7/6) Visa went way up following earnings, and then took a big drop today. We will give it at least a couple of days to rebound, or we will adjust. No changes needed today. NKE Bull Call (6/28) Closed after three weeks for 20%. RHT Bull Call (6/21) Today s drop in the market, and in the stock price for RHT, helped our trade. Our short call lost more value than our long call today. No adjustment needed right now, but we may adjust again this week if we see continued sell off. CAT Butterfly (6/07) CAT took a plunge flowing earnings last week. We are well collared, so we are in great shape. DIS Bull Call Calendar (5/26) No change on DIS today. AAPL Bull Call Calendar (5/18) There re one of two ways we could adjust this trade: 1) we could sell to open more Aug15 $125 short calls, such that we end up with the same number of contracts as our long calls, or 2) we could sell to close some of our Aug15 $130 long calls, such that we end up with the same number as our current short calls. Either way, we want to end up in an equal ratio bear call spread. At the open tomorrow, we are going to sell to close half our long calls, such that we end up with an equal number of long and short calls, in an Aug15 $125/$130 bear call spread. subscribers own potential risk.4

5 Watch for the Signals Signals to Watch for in the Upcoming Week and Why. Economic Reports Jul 27 Durable Orders Jun Jul 28 Case-Shiller 20-city Index May Jul 28 Consumer Confidence Jul Jul 29 MBA Mortgage Index 07/25 Jul 29 Pending Home Sales Jun Jul 29 Crude Inventories 07/25 Jul 29 FOMC Rate Decision Jul Jul 30 Initial Claims 07/25 Jul 30 Continuing Claims 07/18 Jul 30 GDP-Adv. Q2 Jul 30 Chain Deflator-Adv. Q2 Jul 30 Natural Gas Inventories 07/25 Jul 31 Employment Cost Index Q2 Jul 31 Chicago PMI Jul Jul 31 Michigan Sentiment Jul Watch the Reports Durable Orders Durable goods orders declined 1.8% in May after declining a downwardly revised 1.5% (from -1.0%) in April. The Briefing.com Consensus expected durable goods orders to decline 0.5%. Excluding transportation, durable goods orders increased 0.5% in May after a 0.3% decline in April (revised from -0.2%). The consensus expected these orders to increase 0.6%. As expected, the entire decline can be traced to another big pullback in aircraft orders. Boeing (BA) reported a big drop in sales in May. That translated into a 28.9% decline in defense and nondefense aircraft orders in May. Motor vehicle orders were flat after increasing 0.4% in April. Despite weak regional manufacturing surveys, demand for manufacturing goods was strong in May. Machinery orders increased 0.4% and computer and electronic products orders increased 2.2%. Both primary and fabricated metal orders increased 0.6% in May. The only major sectors that reported declines, outside of transportation, were electrical equipment (- 0.4%) and other durable goods (-0.3%). Business capital demand rebounded in May. Orders of nondefense capital goods excluding aircraft increased 0.4% in May after declining 0.3% in April. Shipments, which factor into GDP growth calculations, increased 0.3% for a second consecutive month. A steep drop in aircraft orders masked an otherwise strong durable goods orders report. Consumer Confidence The Conference Board s Consumer Confidence Index increased to in June from a downwardly revised 94.6 (from 95.4) in May. The Briefing.com Consensus expected the Consumer Confidence Index to increase to The increase in the index brought it back in-line with March levels. The Expectations Index increased to 94.6 in June from 86.2 in May. The Present Situation Index rose to from That was the highest reading since subscribers own potential risk.5

6 it reached in February. Typically, confidence follows trends in job market conditions, gasoline costs, and equity values. In June, strong improvements in job market conditions, as shown by an initial claims level that flirted with 15-year lows throughout the month, outweighed gasoline price increases. The increase in confidence does not necessarily mean consumption growth will also accelerate. Consumption is tied to income growth. As long as income continues to expand, consumption growth should follow. Consumer sentiment has little influence on consumption. As long as payroll levels continue to expand, the resulting income growth should keep consumption gains steady regardless of the monthly ebbs and flows in sentiment Initial and Continuing Claims After a few weeks of persistently climbing initial claims, the initial claims level plummeted to 255,000 for the week ending July 18 from an unrevised 281,000 for the week ending July 11. The Briefing.com Consensus expected the initial claims level to decline to 279,000. The continuing claims level declined to mln for the week ending July 11 from an upwardly revised mln (from mln) for the week ending July 4. The consensus expected the continuing claims level to decrease to mln. That is the lowest initial claims reading since November 1973 when the initial claims level dipped to 233,000. The BLS reported that there were no special factors that impacted this week s claims reading. There weren t any economic or business reports that would explain the big decline either. Given the historical nature of the decline, it is likely that the initial claims level will spike back up next week as a result of normal volatility before settling back into the 275, ,000 range. There was no underlying factor for the big decline in the initial claims, which leads us to believe the drop will be extremely temporary. GDP - Deflator First quarter GDP declined 0.2% in the third estimate. That is up from a previously reported 0.7% decline in the second estimate. GDP increased 2.2% in Q The Briefing.com Consensus expected GDP to be revised down to -0.2%. The upward revisions had a positive effect on real final sales, but it wasn't enough to change the overall outlook. Real final sales were revised up to - 0.6% from -1.1%. The revisions were in-line with expectations following the release of the Quarterly Services Survey. That report showed that both household spending on services and intellectual property product investment were better than what the BEA previously reported. Several other monthly reports from April and May, such as the new residential construction release, also showed upward revisions to March data. To that end, consumption spending was revised up from a 1.8% gain in the second estimate to 2.1% in the third estimate. Goods spending was revised up to 1.0% from 0.5% on an upward revision to nondurable goods spending (to 0.8% from 0.1%). Services spending was revised to a 2.7% gain from a previously reported 2.5% increase. subscribers own potential risk.6

7 Despite the upward revision, that was still the smallest increase in consumption since a 1.2% gain in Q Total fixed investment was revised up to -0.3% from -2.8%. Nonresidential investment declined 2.0% in the third estimate, which was up from a previously reported 2.8% decline in the second estimate. Intellectual property product investment was revised up to 4.9% from 3.6%. Residential investment was revised up and increased 6.5% from an originally reported 5.0% gain. That was the fourth consecutive quarterly increase and the largest gain since an 8.8% increase in Q The change in inventories was revised up from $95 bln to $99.5 bln. The export deficit was virtually unchanged at $548.0 bln. Several upward revisions made GDP growth look better in the third estimate for Q However, GDP still declined for the first time since Q Employment Cost Index The Employment Cost Index increased 0.7% in Q after increasing a downwardly revised 0.5% (from 0.6%) in Q The Briefing.com Consensus expected employment costs to increase 0.6%. Wages and salaries increased 0.7% in the first quarter, up from a 0.6% increase in Q Benefits spending growth held steady at 0.6%. Private industry compensation increased 0.7% in Q after increasing 0.5% in Q Both wages and salaries (0.7% vs. 0.5%) and benefits (0.6% vs. 0.5%) accelerated in the first quarter. Public compensation growth decelerated in the first quarter, up only 0.5% after increasing 0.6% in Q Wages and salaries were steady, up 0.4% for a second consecutive quarter. Benefits spending increased 0.5% in Q after increasing 0.9% in Q Employment costs are the major component of business costs. The trend in these data therefore have important implications for cost-push inflationary pressures and for profit margins. Chicago PMI The Chicago PMI increased to 49.4 in June from 46.2 in May. The Briefing.com Consensus expected the Chicago PMI to increase to According to the report, manufacturing activity in the Chicago region has contracted in 4 out of the last 5 months. The contraction in production eased in June, as the related index increased to 49.8 from 45.8 in May. Unfortunately, the contraction may not end next month. While new orders managed to break free of their contraction cycle, evidenced by the index rising to 51.7 from 47.5, the pullback in backlogs got much worse. The Order Backlogs Index fell to 41.0 in June from 47.3 in May. That was the lowest reading since September 2009.Without a steady supply of backlogs, an upturn in production will be highly reliant on the volatile new orders growth. The Employment Index fell to 45.7 in June from 48.0 in May. That was the lowest reading since November The Chicago PMI has little overall economic value, and is only watched by the financial markets because it is usually released one day in advance of subscribers own potential risk.7

8 the similar national ISM manufacturing survey. A significant move in this regional survey will therefore sometimes be seen as having predictive value for the ISM index. Michigan Sentiment The University of Michigan's Consumer Sentiment Index declined to 93.3 in the preliminary July reading from 96.1 in June. The Briefing.com Consensus expected the index to increase to Consumer sentiment typically follows trends in gasoline costs, stock market movements, employment, and media reports. In this case, dire economic reports about Greece and the eurozone and some volatility in the equity market likely offset recent improvements in gasoline prices and employment conditions. The Current Conditions Index dropped to in July from in June. The Expectations Index declined to 85.2 from The decline in sentiment is unlikely to have much of an impact on consumption trends. Consumption relies on income growth. As long as income continues to grow, consumption gains should follow regardless of how sentiment performs. Consumer sentiment has little influence on consumption. As long as payroll levels continue to expand, the resulting income growth should keep consumption gains steady regardless of the monthly ebbs and flows in sentiment subscribers own potential risk.8

9 The Watch List Symbol Earnings F 7/28 GRMN 7/28 VLO 7/28 FB 7/29 XOM 7/29 CVX 7/30 DIS 8/3 FSLR 8/3 TM 8/6 HD 8/1 DE 8/22 BBY 8/24 SWHC 8/24 COST 9/30 RHT 9/16 ADBE 9/17 MON 9/24 NKE 9/24 TSLA 9/29 WBA 10/9 EBAY 10/14 NFLX 10/15 AAPL 10/21 BA 10/21 BIDU 10/22 SNDK 10/22 UA 10/22 V 10/22 CAT 10/23 P 10/23 SBUX 10/23 subscribers own potential risk.9

10 The Bull Call Calendar Spread A debit spread, the bull call calendar uses a long and a short call in different months of expiration. The long call is placed at, or very near the money (traditionally just out of the money, but whether in, or out, does not matter) and is the primary or money making option. A short call is then placed one or more strike prices higher and with a shorter expiration date and is the secondary or hedging option. The idea is that any bullish move, even if slow, will increase the value of the long option faster than the value of the short option. As the long option moves closer to, or deeper into the money, the delta moves closer to 1.0 while the short option is lagging behind and therefore not gaining value as fast. A good target ROI on most bull call calendar spreads is 20% - 30% and a good target time in the trade is 45 days or less. The expiration date of the options can be as near or far term as desired, so long as they are different dates for the long and short call, but to preserve the ability to adjust the trade, days is a minimum recommendation for the expiration of the long call unless using weekly options. Then a shorter expiration date could still be effective. subscribers own potential risk.10