Lone Pine Filing Has Option Bulls Rushing Lululemon Athletica inc. (LULU)

Lone Pine Capital has taken a 5% stake in Lululemon Athletica inc. (LULU)

Jan 26, 2016 at 11:11 AM
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It's been a busy month for activist investors, including Lone Pine Capital. The firm recently disclosed in a filing that it's taken a 5% passive stake in yoga apparel maker Lululemon Athletica inc. (NASDAQ:LULU), and the news has the stock 1.2% higher this morning at $58.30. Meanwhile, short-term option traders are responding by targeting some near-the-money strikes.

LULU's two most active options are the weekly 1/29 59-strike and February 58.50 calls. By the looks of it, traders are buying to open positions here, suggesting they believe the stock's upward momentum will continue through the respective expiration dates -- this Friday night and at the close on Friday, Feb. 19.

This isn't out of the ordinary. During the past 20 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 2.25 LULU calls for each put.

However, in terms of short-term open interest, traders have never been more put-focused during the previous 12 months. Specifically, LULU's Schaeffer's put/call open interest ratio (SOIR) checks in at 1.64 -- in the 100th percentile of its annual range.

Elsewhere, short sellers have been unwinding their positions. During the latest reporting period, for instance, short interest on LULU fell 7.3%. However, nearly 24% of the stock's float remains dedicated to short interest, equivalent to roughly 11 days of trading activity, at average volumes. Therefore, it's possible some of the aforementioned call buyers -- especially at out-of-the-money strikes -- are short sellers seeking an upside hedge.

Then again, based on Lululemon Athletica inc.'s (NASDAQ:LULU) technical tenacity, they may simply be "vanilla" bulls. After all, the shares have outperformed the broader S&P 500 Index (SPX) by 19 percentage points over the past month, and have advanced over 30% since last month's intraday low at $44.62.

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