Lululemon Athletica inc. (LULU) Traders Hope for Post-Earnings Downside

Option bears are counting on Lululemon Athletica inc. (LULU) shares to slide after the company reports earnings tomorrow

Jun 8, 2015 at 2:41 PM
facebook twitter linkedin

Lululemon Athletica inc. (NASDAQ:LULU) is getting ready to report earnings bright and early tomorrow. Ahead of this event, overall volume in the stock's options pits is nearly four times what's expected at this point in the session, with each of the 10 most active strikes expiring within the next two weeks.

One option seeing buy-to-open activity is the weekly 6/12 61.50-strike put. By purchasing these in-the-money contracts, short-term skeptics think LULU will extend its deficit south of $61.50 through this Friday's close, when the series expires. Based on the $1.97 volume-weighted average price (VWAP) of the puts, breakeven at week's end is $59.53 (strike less VWAP).

As alluded to, LULU will offer up quarterly results Tuesday morning. On average, the shares have swung 10.6% in the session following the retailer's last eight appearances in the earnings confessional. Based on near-term straddle information, the market is pricing in a slightly more modest post-earnings move of 9.2%.

It looks like most speculators are counting on a downside move for LULU. The stock's 10-day put/call volume ratio across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 1.18, with long puts outstripping calls. What's more, this ratio ranks in the 85th annual percentile.

Also, over 12% of LULU's float is dedicated to short interest. This represents roughly 11 sessions' worth of trading activity, at the equity's average daily volume.

Technically speaking, Lululemon Athletica inc. (NASDAQ:LULU) has lost 4.4% today to trade at $61.01. From a longer-term standpoint, the shares have spent 2015 churning between $60 and $70.

Begin the New Year With Schaeffer's 7 FREE 2022 Stock Picks!



Special Offers from Schaeffer's Trading Partners