Short-term LULU options are cheap at the moment
Shares of Lululemon Athletica inc. (NASDAQ:LULU) topped out at a record high of $130.49 earlier, after Cowen and Company raised its price target on the retail stock to $137 from $120. While LULU has since swung 1.5% lower to trade at $126.64, the equity could be ripe for a bullish options trade, if history is any guide.
In fact, LULU stock recently popped up on a screen run by Schaeffer's Senior Quantitative Analyst Rocky White that identifies stocks trading within 2% of a 52-week high with relatively low short-term implied volatilities. Lululemon's Schaeffer's Volatility Index (SVI) of 26% ranks in the 3rd percentile of its annual range, meaning near-term options have priced in lower volatility expectations just 3% of the time in the last year.
In the two other times this signal has flashed since 2008, LULU stock went on to average a one-month gain of 8.02%, with both returns positive. Based on its current perch, another move of this magnitude would put the security near $136.79.
Lululemon stock has already put in a strong showing on the charts, as evidenced by today's milestone. More specifically, the shares are currently boasting a 116.8% year-over-year gain. Plus, LULU appears to have formed a short-term floor in the $120-$123 region, home to its rising 20-day moving average and the site of its early June bull-gap highs.
Those looking to bet on more short-term upside for LULU stock could consider the August 120 call. The ask price for this in-the-money option was last seen at $9.00, making breakeven for call buyers at August expiration $129 (strike plus premium paid).
It's worth noting, too, that Lululemon Athletica stock has consistently rewarded premium buyers over the past year. This is based on the equity's Schaeffer's Volatility Scorecard (SVS) reading of 91 out of a possible 100, meaning LULU has tended to make bigger moves over the last 12 months, relative to what the options market was expecting.