Lululemon Shorts Get Squeezed as Analysts Applaud Earnings Beat

Brokerage firm Canaccord Genuity upgraded LULU stock to "hold" from "sell"

Managing Editor
Dec 7, 2017 at 9:56 AM
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Shares of athletic apparel brand Lululemon Athletica Inc. (NASDAQ:LULU) are soaring today after the retailer reported a third-quarter earnings and revenue beat, and received one upgrade and no fewer than 15 price-target raises in response. LULU's singular upgrade to "hold" came from Canaccord Genuity -- just days after the brokerage firm backed its "sell" rating -- while the highest new price target of $85 comes courtesy of Susquehanna.

Lululemon stock is up 6.3% at $71.93 at last check, with today's bull gap pushing its year-to-date gain north of 10%. A daily close above the round $70 level would be the stock's first since September 2016.

In the options pits, traders have been leaning towards the bears' camp on LULU. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the apparel stock's 10-day put/call volume ratio of 1.39 ranking in the 96th percentile of its annual range. This indicates that puts have been bought to open over calls at a faster-than-usual clip during the past two weeks.

Echoing this, LULU's Schaeffer's put/call open interest ratio (SOIR) of 1.35 also ranks higher than 96% of comparable readings taken in the past year. This means short-term options traders have rarely been more put-heavy during the past 12 months.

Short interest on Lululemon Athletica stock fell by more than 22% during the past two reporting periods, but still represents 6.2% of the stock's total available float. At LULU's average daily trading volume, it would take upwards of five days for the shorts to cover their remaining bearish bets -- suggesting today's big pop could be the result of a short squeeze starting to play out.


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