LULU Analysis

Lululemon Athletica Inc. (LULU)

Update 6/5/2017: LULU  gapped sharply higher after earnings wee published and then retraced a small portion of the gain, not enough to make the position profitable but sufficient to greatly mitigate the loss. I exited with four days to go before expiration.

Shares produced a net rise of 10.4% over the four-day lifespan of the position, or a +951% annual rate. The options position produced a 3.4% loss on debit for a -313% annual rate.

LULU publishes earnings on Thursday after the closing bell.

I shall use options that trade for the last time eight days hence, on June 9.

Implied volatility stands at 63%, which is 5.2 times the VIX, a measure of the volatility of the S&P 500 index.

LULU’s IV stands in the 87th percentile of both its annual range and its most recent broad movement.

The price used for analysis was $48.68.

Premium: $4.78 Expire OTM  
LULU-iron fly Strike Odds Delta
Long 58.00 92.1% 10
Break-even 53.78
Short 49.00 54.15 51
Short 49.00 45.8% 49
Break-even 44.78
Long 40.00 91.0% 7

The premium is 53% of the width of the position’s wings.

The risk/reward ratio is 0.9:1.

Decision for My Account

I have entered an order on LULU as described above. The stock at the time of entry was priced at $48.74.

By Tim Bovee, Portland, Oregon, June 1, 2017


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