Lululemon Athletica inc. (LULU) Stock, Call Volume Surge Amid Takeover Talk

Lululemon Athletica inc. (LULU) call options are in high demand once again

Oct 26, 2016 at 2:38 PM
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Following an unusual uptick in volume this morning, yoga apparel seller Lululemon Athletica inc. (NASDAQ:LULU) is 3.6% higher at $57.07. At last check, stock volume was running in the 80th percentile of its annual range, and the attention has poured over into LULU's options pits, as well. Most of the action has been on the call side of the aisle, with the contracts trading at nearly two times the pace typically seen at this point in the session. 

According to Trade-Alert, bullish options traders may be responding to unsubstantiated takeover chatter today. The most popular option so far is the November 60 call, though it's possible this is due to call writers closing their positions amid today's upward move. Meanwhile, "vanilla" call players appear to be buying to open the weekly 10/28 56.50-strike call, betting on extended gains for LULU shares through the end of this week, when the contracts expire. 

This heavy interest in LULU call options is just part of an ongoing trend. For example, the stock's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is an elevated 5.22 -- putting it atop 95% of the past year's readings. Even more telling is LULU's Schaeffer's put/call open interest ratio (SOIR) of 0.58, which is seated at an annual low. 

No matter if it's calls or puts, anyone buying LULU's near-term options appears to be striking at an opportune time. The stock's Schaeffer's Volatility Index (SVI) of 31% ranks below 87% of all readings from the past year, indicating short-term options are pricing in unusually low volatility expectations at the moment. 

It should be noted that any unusual call activity on LULU could be tied to the stock's elevated short-interest levels -- in other words, short sellers may be hedging their positions with long calls. By the numbers, 16.5% of LULU's total float is sold short, representing almost seven sessions' worth of buying power, going by average daily trading volumes. 

Today's gains aside, Lululemon Athletica inc. (NASDAQ:LULU) bears have been having a field day in recent weeks. Since peaking at $81.81 in late August, the shares have fallen more than 30%.

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