Options Bulls Blast Bouncing Lululemon Stock

Renewed takeover chatter has sparked interest in Lululemon Athletica's call options

Apr 19, 2017 at 12:39 PM
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Lululemon Athletica is seeing increased options trading today, as the yoga apparel maker once again finds itself in the M&A spotlight. As takeover chatter swirls, LULU stock is up 0.9% at $52.41, and call volume is running at 1.4 times what's typically seen at this point in the day. More than half of the 12,233 calls on the tape reside in the front-month April series, too, and it looks like a number of LULU options traders are betting on even more gains through week's end.

Diving deeper, LULU's April 52.50, 53, and 55 calls have seen the most action, with a collective 6,719 contracts traded. It looks as if new positions are being purchased here, a theory echoed by Trade-Alert. If this is the case, the goal is for LULU stock to settle north of the respective strikes at this Friday's close, when the front-month options expire. 

Lululemon Athletica Options Traders Have Been Bullish

Widening the sentiment scope reveals today's accelerated call activity is just more of the same in LULU's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 1.36 ranks in the 73rd annual percentile. In other words, calls have been bought to open over puts at a faster-than-usual clip.

Echoing this is LULU's Schaeffer's put/call open interest ratio (SOIR) of 0.59. Not only does this show that calls outweigh puts among options expiring in three months or less, but it represents an annual low. Simply stated, short-term options traders have rarely been as call-skewed toward LULU stock as they are now. Plus, call open interest of 124,202 contracts is docked in the 97th annual percentile.

Short-Term Volatility Expectations are Low Toward LULU Stock

It's certainly an opportune time to bet on LULU's near-term trajectory with options. While the equity's 30-day at-the-money implied volatility of 27.8% arrives below 72% of all comparable readings taken in the past year, its Schaeffer's Volatility Index (SVI) of 27% is perched in the 9th percentile of its annual range. Summing it all up, low volatility expectations are currently being priced into LULU's short-term options -- a potential boon for premium buyers.

Technically speaking, LULU stock has been a long-term laggard, down 21% year-over-year. More recently, the shares gapped sharply lower in late March after a negative earnings reaction. Nevertheless, Lululemon Athletica has since found a foothold atop the round $50 mark -- a level that coincides with heavy put open interest in both the April and May series, and could reinforce support for the shares over the next several weeks.

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