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Lululemon Athletica inc. Halo Lift Sparks a Rush of Option Activity

Lululemon Athletica inc. calls and puts are trading at accelerated levels today

by 7/24/2014 2:41 PM
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Lululemon Athletica inc. (NASDAQ:LULU) is getting a halo lift today from sector peer Under Armour Inc (NYSE:UA), with shares of LULU up 4.8% at last check to trade at $39.37. In the stock's options pits, overall volume is trading at more than two times the average intraday pace, and all 10 of the most active contracts expire within the next two months. Against this accelerated demand for short-term options, LULU's 30-day at-the-money implied volatility (IV) has jumped 3.8% to 34.1%.

On the call side, the August 40 and 45 strikes have seen the most action. Diving deeper reveals that two symmetrical blocks totaling 2,600 contracts changed hands at the same time, suggesting the action was related. However, with IV lower at each leg, and open interest sufficient to cover volume, it's entirely possible this trader is closing out a previously initiated call spread on LULU.

Meanwhile, on the put side, the stock's September 37.50 strike is the most active. More than 1,700 contracts have changed hands here at a volume-weighted average price (VWAP) of $2.17. The majority traded at the ask price and IV is higher, pointing to the purchase of new positions. At-expiration breakeven at the close on Friday, Sept. 19 -- a time frame that encompasses LULU's quarterly earnings report -- is $35.33 (strike less VWAP). Gains will accumulate on a move down to zero, while losses are limited to 100% of the premium paid, should the equity finish north of the strike at expiration.

Speaking of earnings, Lululemon Athletica inc. (NASDAQ:LULU) is slated to step into the earnings confessional on Thursday, Sept. 11. The stock's post-earnings price action over the past eight quarters tends to side with the bears, as LULU has averaged a loss of 2.9% in the session subsequent to its report -- including a nearly 18% slide last June. For the yoga apparel maker's second quarter, Wall Street is calling for a per-share profit of 29 cents -- a dime less than what the company banked one year ago.


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