This options strategy can deliver a 177% gain in the next four months.

Retail trends, particularly in apparel, have been relatively disappointing as consumers are choosing to spend their money on tech gadgets or experiences. One big exception has been athletic wear. And no one is capitalizing on that trend and combining the two better than Under Armour, (UA).

The company burst on the scene 18 years ago literally creating the concept of high performance apparel with its “high tech” moisture wicking shirts. It has since continued to push the envelope to grab market share all while maintaining its underdog appeal.

The company is growing by leaps and bounds, as its revenue and operating profit are on track to climb more than 30% in 2014, an acceleration from its 2013 pace with sales topping the $3 billion mark. Numbers like these are part of the reason it was recently named YahooFinance’s Stock of the Year for 2014.

On December 17th the day before that announcement from Yahoo!, Under Armour saw someone purchase over 5,000 of the $70.50 calls that had just one day remaining until expiration. Hmmmm.

The shares did pop the next day delivering a healthy profit on that bet but shares have slid by 10% since. This presents a great buying opportunity as it finds support near the $64 level.

Small but Growing in Right Places

In addition to occupying a hot spot in the apparel industry two of the other things I really like about Under Armour is its size and its focus on the U.S. market. At a $15 billion market capitalization it means each point of market share and sales increase translates into high earnings growth rate. Earnings are expected to increase to $1.20 a share, a 25% year over year increase.

Over the past four-and-a-half years, Under Armour is one of only four companies in the Standard & Poor’s 500 to post at least 20% sales growth in each quarter. Since coming public in late 2005, revenue and earnings growth have averaged more than 30%, marking one of the elite growth stories of the past decade.  This is the type of growth investors are willing to pay a premium which explains its 50x p/e ratio. The rich valuation probably poses the largest negative but if the company continues to deliver it will be justified.

Under Armour still gets 85% of its revenue in the U.S. which is a positive in two ways: It means it still has huge runway for future growth overseas. But for the moment it will be protected from the negative drag on earnings that the strong dollar will have on multinational world leader Nike (NKE) which gets nearly 70% of its revenues overseas.

Also appealing is that Under Armour is its push into the women’s market which has grown from nearly non-existent to over $500 million in the past two years.   Recent ad campaigns featuring Gisele Bundchen has helped ramp up sales and market penetration.

Innovation Leader

Much of Under Armour’s appeal is that it uses technology to deliver superior products that professional athletes use and endorse and that weekend warriors aspire to.

Under Armour’s leadership in innovation for athletic gear is on full display at the Consumer Electronics Conference currently going on in Las Vegas where it maker launched its own digital fitness platform. UA Record, is a free app, available for both Apple and Android systems, provides motion and GPS tracking, analyzes workouts and fitness progress, and tracks health measures. This should help position Under Armour to ride the wave as wearables gain traction with the launch of the Apple watch this spring.

The Trade:

I expect Under Armour’s to resume its trend higher in coming months but relatively high valuation and I want to use a spread to mitigate the risk that shares could hit a bump in coming weeks. The trade I’m looking at is the April $70/$75 call spread.

-Buy April $70 calls

-Sell April $75 calls

For a $1.80 net debit for the spread.

The total risk is the 1.80 cost and would be incurred if shares are below the $70 strike on the April 18^th expiration.

The maximum profit is $3.20 and would be realized if shares are above $75 on or before the April expiration.

This means this option spread has a 2:1 risk reward ratio and can deliver a 177% return if shares rise by 13% over the next four months. Sounds like a winner.