Options Players Pile on Ahead of LULU Earnings

The stock has only suffered one post-earnings loss in the last two years

by Lillian Currens

Published on Sep 5, 2019 at 2:50 PM
Updated on Sep 5, 2019 at 2:55 PM

Athleisure brand Lululemon Athletica inc. (NASDAQ:LULU) is set to unveil its second-quarter earnings after the close today, and options traders have kicked it into high gear. So far, 31,000 calls and 27,000 puts have crossed the tape, five times what is typically seen at this point. From the looks of it, most of these bulls are betting on more upside for LULU, with positions being opened at the weekly 9/6 205-strike call and the weekly 9/13 205-strike call, suggesting that these traders are expecting new highs for the underlying security by the time the contracts expire on Sept. 6 and 13, respectively. At last check, the stock is up 3.7% at $187.45. 

In fact, LULU is eyeing its highest close since it hit an all-time high of $194.25 in July. The equity has cooled since this peak, but was caught by support at its 100-day moving average, which pushed the stock gently higher in August. Despite this recent pullback, LULU still boasts a 54.4% year-to-date gain. 

LULU Chart Sept 5

Today's tendency towards bullish bets is nothing new for LULU, which sports a 10-day call/put volume ratio of 1.55 on the the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits in the 81st percentile of its annual range, hinting at a bigger appetite for calls in recent weeks. 

Historically speaking, this pre-earnings uptick in calls shouldn't come as much of a surprise either. The day after its last eight earnings reports, LULU shares have only suffered one loss, and averaged a 10.2% swing, regardless of direction. This time around, options players are pricing in an even bigger move of 13.1%. 

A round of analysts' notes could drive the stock farther in either direction, too. While the majority of the 22 in coverage consider LULU a "buy" or better, seven have called it a tepid "hold." What's more, The consensus 12-month target price of $193.96 is only at a slim 3.5% premium to current levels. 

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