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Most Active Options Update: Lululemon Athletica inc. (LULU)

Put volume has spiked in LULU's options pits following this morning's earnings report

by 9/12/2013 3:07 PM
Stocks quoted in this article:

The 20 stocks below have attracted the highest options volume -- in the front three-months' series -- during the past five trading days. The companies highlighted are those that are new to the list since the last time the study was run. Data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. Three names of notable interest this afternoon are Lululemon Athletica inc. (NASDAQ:LULU), Bank of America Corp (NYSE:BAC), and Ford Motor Company (NYSE:F).

Ahead of next week's exit from the Dow, BAC is trading around 1% lower this afternoon. In the equity's options pits, one trader appears to be tying both October 14 puts and October 15 calls to stock orders. Elsewhere, despite receiving some upbeat analyst attention today, F is sitting below the flatline. This negative price action has one speculator buying to open the June 2014 15-strike puts. Meanwhile, here is a quick look at the interesting activity in LULU's options pits.


Lululemon Athletica inc. (NASDAQ:LULU) is swimming in red ink, following the yoga apparel maker's turn in the earnings confessional this morning. Although the report topped analysts' estimates, the company offered up a dreary forecast for the current quarter. As such, the equity was last seen almost 4.6% lower at $65.87. Against this backdrop, LULU has seen a changing of the tides in its options pits, with puts outpacing calls heading into the final hours of the session. By the numbers, around 49,000 puts have changed hands, compared to roughly 40,000 calls. As a point of reference, the average daily volume for LULU is 9,369 puts and 9,608 calls.

The most active position thus far is the weekly 9/13 65-strike put, which has seen 6,789 contracts trade for a volume-weighted average price (VWAP) of $0.97. A healthy portion of these puts have crossed on the ask side, volume is outstripping open interest, and data from the International Securities Exchange (ISE) confirms at least some of these positions have been bought to open. The expectation for purchasing the out-of-the-money puts is for LULU to breach the $65 mark ahead of tomorrow's close. More specifically, speculators will begin to profit with each step below breakeven at $64.03 (strike less the VWAP) the stock takes in the course of its short lifetime. Delta for the put is docked at negative 0.28, or 28%, suggesting a roughly 1-in-4 chance the position will land in the money before it expires.

Heading into today's trading, calls were the popular choice on Lululemon Athletica. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day call/put volume ratio of 1.23 ranks in the 75th percentile of its annual range. In other words, calls have been bought to open over puts at a faster-than-usual clip in recent months. Given that LULU has shed nearly 14% year-to-date, and short interest accounts for 16% of the stock's available float, this uptick in call activity could simply represent short sellers picking up hedges ahead of earnings.


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