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Although Lululemon Athletica inc. (NASDAQ:LULU) has shed almost 14% in 2014, option players have been flashing their bullish colors in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), nearly two calls have been bought to open for each put over the past 10 weeks. What's more, the resultant 50-day call/put volume ratio of 1.91 ranks higher than 94% of similar readings taken in the past year, meaning long calls have been initiated over long puts at a near-annual-high clip.
In the front-month series, peak call open interest can be found at the March 52.50 strike, where 6,273 contracts reside. Since the turn of the calendar year, the majority of contracts initiated at this strike have been bought to open. Based on present trading levels, the stock needs to rise roughly 3.3% by Friday's close in order for the calls to be in the money at expiration.
Given the out-of-the-money (OOTM) status of these calls, a portion of the activity could be at the hands of short sellers hedging against any near-term upside. At present, roughly 16% of the stock's float is sold short.
Meanwhile, during this same 10-week time frame mentioned above, neutral-to-bullish speculators on the ISE, CBOE, and PHLX have sold to open 1.43 puts for each one that they've purchased. Looking at the March series -- which expires at the closing bell this Friday -- put sellers have targeted the 47.50 strike, selling to open nearly 5,500 contracts here since Jan. 29. Simply stated, these traders are expecting LULU, currently trading at $50.81, to maintain its perch atop $47.50 through expiration.
Looking ahead, the yoga apparel maker is slated to take its turn in the earnings confessional ahead of the open next Thursday. Option players may be taking note of this event; specifically, the fact that, over the past three quarters, Lululemon Athletica inc. (NASDAQ:LULU) has shed an average of 11.5% and 8.9% in the subsequent day and week, respectively. In yesterday's session, the deep OOTM April 45 put saw buy-to-open activity, while today, the equity's weekly 4/4 48.50-strike put seems to be popular among option bears.