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Citigroup Says Buy Lululemon Stock After Sell-Off

Citigroup upgraded LULU to "buy" from "hold"

Managing Editor
Dec 12, 2018 at 2:18 PM
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The shares of Lululemon Athletica Inc. (NASDAQ:LULUare up 5.1% to trade at $122.74, after Citigroup upgraded the athleisure retailer to "buy" from "neutral." The brokerage firm said LULU "is a brand to own in uncertain times," and that the stock's recent sell-off has created an attractive entry point. Options traders are piling on too, displaying a particularly bullish bias.

Over 9,800 call options have changed hands so far today, 1.5 times what's typically seen at this point. Leading the charge are the weekly 12/14 120- and 122-strike calls, where buy-to-open activity is suspected -- suggesting speculators expect LULU to extend today's rally through expiration at the close this Friday, Dec. 14.

On the charts, Lululemon stock nabbed a record high of $164.79 back on Oct. 1, but pulled back with the broader market. More specifically, LULU has shed 24.5% this quarter, although selling appears to be stalling out near the equity's 50-week moving average. Longer term, LULU boasts a 55.6% lead year-to-date, and has been a frequent target of bull notes in the past month.

Daily Stock Chart LULU

The call buying trend seen today is nothing new, though. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows Lululemon stock with a 10-day call/put volume ratio of 1.52, ranking in the elevated 80th annual percentile. This indicates that over the past two weeks, calls have been purchased over puts at a faster-than-usual clip.

Echoing this the security's Schaeffer's put/call open interest ratio (SOIR) comes in at 0.89, which ranks in the 10th annual percentile. What this means is that short-term options traders are more call-skewed than usual.

 
 

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