Don't Miss This Rare Lululemon Stock Buy Signal

Front-month implied volatilities are low on LULU options

Mar 2, 2018 at 1:07 PM
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Shares of Lululemon Athletica inc. (NASDAQ:LULU) bottomed at an annual low of $47.26 back in May, but have been soaring on the charts ever since -- up almost 73%. What's more, LULU stock topped out at a record high of $83.59 on Tuesday, and were last seen trading not far from here at $81.17. And with earnings not due until late March, it could be a prime time for options traders to bet on a short-term bounce for the shares.

Lululemon's Schaeffer's Volatility Index (SVI) is currently docked at 30% -- in the 8th percentile of its annual range. According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been three other times since 2008 that LULU shares were trading near 52-week highs, while front-month implied volatilities were so low. This resulted in an average one-month gain of 4.44% for the retail stock. Another move of this magnitude would put the security near $84.75 for the first time ever.

What's more, LULU call options are remarkably cheap compared to their put counterparts, even with the stock's impressive technical backdrop. Trade-Alert pegs the equity's 30-day implied volatility skew at 10.8% -- in the elevated 82nd annual percentile.

And contrarian traders can take heart in the fact that there's still plenty of skepticism priced into this outperforming retail stock. Of the 25 analysts covering Lululemon Athletica shares, 11 still maintain a lukewarm "hold" rating. Plus, the average 12-month price target of $83.56 is within a chip-shot of current trading levels. This leaves the door wide open for a round of upgrades and/or price-target hikes to draw more buyers to LULU's table.


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