Lululemon Options Price In Big Earnings Reaction – Schaeffers Research (blog)

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Lululemon Athletica inc. (NASDAQ:LULU) has a history of making volatile post-earnings moves, with the shares averaging a subsequent single-session swing of 13.1% over the past eight quarters. It’s been a clean split as to whether the earnings reactions have been positive or negative, including LULU stock’s 23.4% plunge in March and 15% pop in December. With Lululemon earnings due after tomorrow’s close, the options market is pricing in a 16% swing for Friday’s trading.

LULU Call Options Hot Ahead of Earnings

By the looks of it, most options traders are expecting LULU stock’s post-earnings action will resolve to the upside. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 18,054 calls in the last 10 sessions, compared to 6,563 puts. What’s more, the resultant call/put volume ratio of 2.75 ranks just 6 percentage points from a 52-week peak, meaning this bullish bias is near an extreme.

It looks like the bulk of this activity has been centered at LULU’s weekly 6/2 52.50-strike and June 47.50 calls, where nearly 8,800 contracts have been collectively added over the last 10 trading sessions. Data from the major options exchanges confirms buy-to-open activity at each option, meaning call buyers expect LULU shares to settle north of the strikes at the respective expiration dates of this Friday’s close and the close on Friday, June 16.

LULU Options are Getting Expensive

While the most any “vanilla” call buyer stands to lose is the initial premium paid, it’s getting a bit pricey to buy short-term options on LULU stock ahead of earnings. Not only does the equity’s Schaeffer’s Volatility Index (SVI) of 66% rank in the elevated 76th annual percentile, but its 30-day at-the-money implied volatility hit a 12-month high of 53.3% earlier. In other words, elevated volatility expectations are being priced into LULU’s short-term options, making it more expensive for options traders to purchase premium.

At last check, LULU stock was trading up 0.8% at $48.31. Nevertheless, Lululemon shares hit an annual low of $47.26 earlier, and have shed more than one-quarter of their value on a year-to-date basis.