IB Options Brief: Lululemon Athletic, Inc. (LULU)

Posted March 21st, 2012 by Caitlin Duffy in Unusual Activity

Pre-Earnings Report Posturing On The Rise In Lululemon Options

LULU ñ Lululemon Athletic, Inc.
Lululemonís shares are in rally-mode today, ahead of the athletic apparel retailerís fourth-quarter earnings report Thursday morning. The stock trades higher by 1.45% to stand at $73.94 in early-afternoon trade, and it looks like some traders are using LULU options to taking pre-earnings report positions that benefit from further upside moves in the price of the underlying.

One strategist appears to have initiated a bullish butterfly spread, buying around 3,000 calls at the April $75 and $85 strikes, and selling 6,000 calls at the April $80 strike, all for a net premium outlay of $0.92 per contract. The parameters of the spread indicate potential losses, and potential gains, are limited; maximum possible losses are capped at $0.92 per contract.

The trader may profit at expiration in the event that Lululemonís shares rally 2.7% to surpass the effective breakeven price of $75.92, with maximum possible profits of $4.08 per contract available given an 8.2% move higher in the shares to $80.00. It looks like the butterfly spread is not the only bullish strategy calling for LULUís shares to head higher.

Last Friday, a large block of 12,551 April $80 strike calls were purchased for a premium of $1.60 each. While both transactions look for Lululemonís shares to rally to fresh record highs, one earns maximum possible gains if shares settle at $80.00, while the other looks for shares to rally above $81.60 by expiration next month. More than 33,500 option contracts have changed hands on LULU just before 12:30 p.m. in New York.

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