Lululemon Athletica inc. (LULU) Rumor Mill Has Bulls Piling On

Lululemon Athletica inc. (LULU) calls are crossing the tape at a rate five times the intraday average

Mar 5, 2015 at 3:15 PM
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At its intraday peak, Lululemon Athletica inc. (NASDAQ:LULU) was up nearly 4% amid what Trade-Alert said was unconfirmed takeover chatter, but has since erased these gains to trade down 0.9% at $64.91. Nevertheless, call players are blitzing LULU, with the contracts trading at a rate five times the intraday average -- and a number of speculators betting on the equity to resume its upside by week's end.

Specifically, LULU's weekly 3/6 66-strike call has seen the most action, with 5,691 contracts on the tape -- more than half of the equity's total intraday call volume. All signs suggest buy-to-open activity, as traders gamble on LULU to reclaim its perch atop $66 by tomorrow's close, when the weekly series expires. Although the stock was north of this mark earlier today, delta on the call is currently perched at 0.24, suggesting a less than 1-in-4 chance the option will expire in the money.

Today's accelerated call activity is just more of the same. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), LULU's 50-day call/put volume ratio of 2.65 ranks in the 81st percentile of its annual range. Simply stated, calls have been bought to open over puts at a faster-than-usual clip in recent months.

This rush toward calls shouldn't be too surprising, given Lululemon Athletica inc.'s (NASDAQ:LULU) technical tenacity. Over the past four months, the equity has surged more than 48%, thanks to a lift from its 40-day moving average. What's more, the shares have been making a string of higher highs along the way, including hitting a fresh 52-week peak of $68.99 on Monday.

Daily Chart of LULU Since November 2014 With 40-Day Moving Average
 

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