Pre-Earnings Put Players Pounce Lululemon Athletica inc. (LULU)

Lululemon Athletica inc. (NASDAQ:LULU) will step into the earnings confessional bright and early tomorrow

Jun 7, 2016 at 2:50 PM
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Yoga apparel maker Lululemon Athletica inc. (NASDAQ:LULU) is slated to report first-quarter earnings tomorrow morning, and ahead of the event, the shares are off 0.8% at $68.22. Nevertheless, CNBC's Jim Cramer waxed optimistic on LULU stock, saying "you buy some, then let it come down and then buy more." And while put volume has jumped to five times what's typically seen at this point in the day, not all of the pre-earnings options activity is of the bearish variety.

Drilling down, the stock's weekly 6/10 60-strike put is the most active among options slated to expire at this Friday's close. Per data from the International Securities Exchange (ISE), at least some of this activity is of the sell-to-open kind, meaning put sellers are betting on the round $60 mark to serve as a short-term floor.

Elsewhere, a more traditional put player appears to have lowered her near-term expectations for outperforming LULU. Specifically, it looks as if this bearish options trader may have rolled her long June 60 puts up to the 63 strike. Regardless of where the stock settles at next Friday's close -- when front-month options expire -- the put buyers' losses are limited.

More broadly speaking -- outside of a rare showing by option bulls last week -- put buyers have been flooding LULU's options pits. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.81 ranks in the 63rd annual percentile. In other words, puts have been bought to open relative to calls at a faster-than-usual clip.

Even more telling is LULU's Schaeffer's put/call open interest ratio (SOIR) of 2.10, which indicates puts more than double calls among options expiring in three months or less. Plus, this ratio rests higher than 87% of all comparable readings taken in the past year, suggesting short-term speculators have rarely been as put-skewed as they are now.

Technically, LULU has been flying since bottoming at an annual low of $43.14 in mid-November, up 58%. Meanwhile, the round $60 level has emerged as a solid floor for Lululemon Athletica inc. (NASDAQ:LULU), containing all of the stock's pullbacks since mid-February.

LULU daily chart

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