Two sides of options coin

  • LULU dropped nearly 15% Friday–Monday
  • Many puts more than doubled at yesterday’s highs
  • Options volatility relatively low despite sell-off

While many traders and investors focus on a stock’s performance leading up to an earnings release, there are plenty of examples illustrating why it’s worth paying attention to what happens after the dust settles.

Retailer Lululemon (LULU) dropped 13% last Friday despite beating earnings estimates by 4 cents and topping revenue forecasts by roughly $90 million. Options volume ran about 13 times average, with calls trading slightly more than puts.

The stock dropped an additional 2.3% early Monday (although it pared its losses as the day progressed), extending its pullback from December 2’s roughly eight-month high to more than 17%:

Chart 1: Lululemon (LULU), 4/18/22–12/12/22. Lululemon (LULU) price chart. Tagged five-month low.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

The company did, however, give an outlook for the fourth quarter that was below analyst estimates1—although that didn’t appear to dampen the enthusiasm of some Street analysts, including those at Morgan Stanley & Co., who raised the stock’s 12-month target to $387,2 roughly 19% above where the stock was trading on Monday.

Meanwhile, while the Friday–Monday selling pushed the stock’s historical volatility (HV) to its highest levels since June, its options implied volatility (IV) was still toward the lower end of its range of the past eight months.

That highlighted a couple of interesting aspects of LULU’s option prices. Relatively low IV can mean option premiums aren’t overpriced, which can be an advantage for traders interested in buying options, regardless of which direction they think the underlying stock may move.

Even so, the sell-off triggered some understandably sizable moves in LULU options. Even so, the sell-off triggered some sizable price changes in LULU options, including the January (monthly) $300 put:

Chart 2: Lululemon (LULU) Jan. $300 put, 11/16/22–12/12/22. Lululemon (LULU) options price chart. Put jumped to three-week high.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

That could mean traders who lean toward a more bullish short-term or intermediate view of the stock may have been looking to sell what they saw as temporarily inflated put premiums—despite the stock’s moderate IV levels.

Market Mover Update: January WTI crude oil futures (CLF3) jumped more than 3% intraday on Monday, climbing back above $73/barrel (see “Slippery oil market”).

Today’s numbers include (all times ET): NFIB Small Business Optimism Index (6 a.m.), Consumer Price Index, CPI (8:30 a.m.).

Today’s earnings include: ABM Industries (ABM), Braze (BRZE), Core & Main (CNM).


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1 Reuters. Lululemon athletica (LULU) stock drop after earnings is a buying opportunity – analyst. 12/9/12.
2 Lululemon Athletica Inc. (LULU) PT Raised to $387 at Morgan Stanley. 12/9/22.

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