Lululemon Athletica inc. (LULU) Put Volume Pops Amid Retail Rally

Traders have been selling to open Lululemon Athletica inc. (NASDAQ:LULU) put options

Josh Selway
Jul 25, 2016 at 2:43 PM
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While the broader stock market is moving lower, the retail sector is heating up. In fact, many of the top gainers today on the S&P 500 Index (SPX) are retail stocks, including Nordstrom, Inc. (NYSE:JWN), Gap Inc (NYSE:GPS), and Macy's, Inc. (NYSE:M). It's not entirely clear what's causing this sector-wide surge, though Macy's received a price-target hike to $37 from $35 at Deutsche Bank. Regardless, the tailwinds have reached stocks outside the SPX, as well. For example, yoga apparel maker Lululemon Athletica inc. (NASDAQ:LULU) is up 1.9% at $77.58, and options volume is accelerated. 

Digging into the data, LULU's single-day put/call volume ratio of 3.85 ranks in the 94th annual percentile, signaling a stronger-than-usual demand for puts over calls. In fact, put volume is running at five times the intraday norm. However, it appears much of this volume can be attributed to a single put seller. Trade-Alert data suggests that a block of 9,142 August 73 puts were sold to open this morning, meaning a trader is betting on this level holding as technical support through the close on Friday, Aug. 19, when the contracts expire. 

This put bias isn't unusual. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.25 reveals put open interest outweighs call open interest among options expiring within three months. Plus, put buyers have been out in force at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) in recent weeks, per LULU's 10-day put/call volume ratio of 1.47 -- in the 86th annual percentile.

Outside the options pits, short interest has fallen considerably in 2016. At the beginning of the year, 25.9 million LULU shares were controlled by short sellers. Now, this figure stands at 19.5 million -- a nearly 25% decline. However, these bears still control over 18% of the stock's float, and at its average daily volumes, it would take LULU short sellers two weeks to cover their positions. 

If this short-covering trend continues, it should help Lululemon Athletica inc. (NASDAQ:LULU) move even higher on the charts. So, too, could an unwinding of bearish options traders provide a boost. Already this year, the stock has gained roughly 48%, hitting a three-year high of $78.40 one week ago. 

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