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Options traders falling out of love with Lululemon ahead of earnings

It’s finally starting to look like Lululemon‘s rally may no longer be impervious to market conditions that have hampered similar retailers

After a wild run higher that saw the athleisure darling skyrocket more than 100% off the lows, the stock is pulling back ahead of Thursday’s scheduled earnings report, and sentiment in the options market is starting to turn sour. 

“Lululemon, right now, is implying a move of about 7.5% after they report earnings,” Michael Khouw, chief investment officer at Optimize Advisors, said Wednesday on “Fast Money.”

That implied move is signaling that the options market is actually pointing to less post-earnings volatility than Lululemon has produced in the past. Over the last eight quarters, the stock has moved an average of 9.5% after it reports.

Instead of continuing to stretch their gains even higher after this report, options traders are betting investors who have ridden this bounce off the bottom will be willing to take profits. 

“We did see puts out-trading calls [Wednesday], and the two most active [contracts] were the 300-strike puts that expire next week, and also this week,” said Khouw. 

Buyers of the weekly 300-strike puts that expire after the bell on Friday paid an average of $3.75 per contract, placing their breakeven around $296.25 on Lululemon’s underlying stock price, or just about 8.5% below where it closed Wednesday’s session. 

That’s slightly rich to the move that Lululemon is implying, but as Khouw would point out, there is a chance that at least some of these bets are hedges, rather than outright bearish speculation.

“One of the reasons [these traders] might be doing this? Lulu has been on an incredible tear,” said Khouw. “So, maybe people are just trying to book some of the gains in Lulu they’ve seen so far.”

Lululemon was 3% lower in Thursday’s session.


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