Trader Gambles on a Rocky Road for Under Armour, Inc. (UA)

Under Armour Inc (NYSE:UA) calls have been popular of late on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The stock's 50-day call/put volume ratio across those exchanges is 2.19 -- which sits just 2 percentage points from a 12-month peak.

Yesterday, however -- as with sector peer Nike Inc (NYSE:NKE) -- puts were in high demand, crossing at more than double the usual daily rate, and outpacing calls by a healthy margin. What's more, UA's 30-day at-the-money implied volatility rose 4% to 38.9%, hinting at increased demand for short-term strikes.

Digging deeper, a sizable portion of Tuesday's activity transpired as a 3,000-contract ratio spread. Specifically, according to ISE data, one speculator simultaneously sold to open 1,000 February 65 puts for $0.69 each, and a matching block of February 75 calls for $1.72 each, and bought to open 1,000 February 70 puts for $2.11 apiece. In short, this trader is looking for UA to breach $70 -- but settle above $65 -- by the close on Friday, Feb. 20, when the front-month series expires.

By funding his long put spread with the short calls, the trader collected a premium of $0.30 per trio of contracts ($0.69 plus $1.72, minus $2.11), or a total of $30,000 (premium * number of contracts * 100 shares per contract). Had he simply bought to open the February 70 puts, the trader would have shelled out a total of $211,000 -- which would have represented his maximum potential loss.

With the spread, though, there is a trade-off. Specifically, the speculator is exposed to significant risk, should UA rally above $75 or plummet below $65 by February expiration.

This morning, Under Armour Inc (NYSE:UA) is up 0.1% at $72.05, bringing its year-over-year advance to a brow-raising 69%. In fact, the stock is within a chip-shot of its record peak of $73.42, touched in early September. With earnings just around the corner next Wednesday afternoon, UA could soon be on its way to higher highs. Following the company's last eight quarterly reports, the stock has gained 1.6%, on average, in the ensuing session.