Lululemon Call Volume Pops on Strong Holiday Guidance

Call buying has been a popular options strategy on LULU

Jan 14, 2019 at 1:44 PM
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The shares of Lululemon Athletica inc. (NASDAQ:LULU) have shot up 6% to trade at $140.03, after the athletic apparel maker raised its guidance for the key holiday season, citing China as a specific growth driver. The company now expects its fourth-quarter per-share profit to arrive between $1.72 and $1.74 -- more than analysts are expecting -- and revenue of $1.14 billion to $1.15 billion.

Bullish options trading is heavy today as a result, with roughly 28,000 calls on the tape -- seven times what's typically seen at this point, and nearly triple the number of puts traded. While one trader appears to be rolling their long June 150 calls up to the 175 strike, other speculators are possibly purchasing new positions at the January 2019 145-strike call. If this is the case, they expect LULU stock to rally beyond $145 by front-month options expiration at the close this Friday, Jan. 18.

Today's activity echoes the wider trend seen in LULU's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the retail stock's 10-day call/put volume ratio of 1.45 ranks in the 75th annual percentile, meaning calls have been bought to open over puts at a quicker-than-usual clip.

The optimism is seen elsewhere on Wall Street, too, with just 4.8% of the stock's float controlled by short sellers. Plus, 73% of analysts maintain a "buy" or better rating, and the average 12-month price target of $160.17 is a 14% premium to current trading levels. And earlier today, LULU saws its target price hiked at Credit Suisse (to $172) and Canaccord Genuity (to $163), with the latter saying its "view of LULU as a top pick in 2019 is only emboldened."

Looking at the charts, Lululemon stock has been sailing higher since its mid-2017 lows near $50. After hitting a record high of $164.79 on Oct. 1, the shares pulled back amid stiff broad-market headwinds, but found a foothold at its 50-week moving average late last month. What's more, LULU has only closed one session lower so far in 2019, up 15% year-to-date.

lulu stock weekly price chart on jan 14


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