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.
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