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Lululemon Athletica inc. (NASDAQ:LULU) has spent the past two months bouncing between $38 and $41, and on Monday, the equity settled near the higher end of this range, at $40.83. In the stock's options pits, speculators gambled on LULU to extend its lead over the round-number $40 mark, and break through the upper end of this trading range over the next eight weeks.
Specifically, the October 40 call saw the most action in LULU's options pits on Monday. Almost all of the 4,617 contracts traded did so on the ask side, hinting at buyer-driven volume. Implied volatility edged higher, and the vast majority of positions translated into open interest overnight, making it safe to assume a fresh batch of bullish bets was initiated.
The volume-weighted average price (VWAP) for the calls was $2.99, making breakeven at the close on Friday, Oct. 17 -- when back-month options expire -- $42.99 (strike plus VWAP). Gains are theoretically unlimited beyond this point, while losses are capped at 100% of the premium paid, should LULU settle south of the strike at expiration -- a time frame which encompasses the company's next quarterly earnings report.
In fact, LULU will take to the stage on Thursday, Sept. 11 to reveal its fiscal second-quarter results. Over the past eight quarters, the company has bested analysts' bottom-line estimates each time, yet the stock has averaged a single-session post-earnings loss of 2.9% -- including last quarter's 15.9% plunge. For Lululemon Athletica inc.'s (NASDAQ:LULU) upcoming earnings report, Wall Street is calling for a per-share profit of 29 cents -- a dime less than what the yoga apparel issue banked one year ago.