Lululemon Athletica Inc. (LULU) is a Vancouver based designer, creator and retailer of activewear and athletic apparel for men and women. LULU is perhaps most well known for its highly popular line of women’s yoga apparel, and delivers all of its products to end customers through its network of international brick and mortar retail locations, its corporate website, and selective distribution to various yoga studios and fitness clubs. At the time of this article’s writing (10:30AM CST), LULU is currently trading at 47.90, up 0.36% on the day. The stock is currently trading in the lower portion of its 52 week range of 36.26-69.62, and is still down over 20% from this time last year, even after bouncing off of the yearly lows that printed in early June. LULU is set to report earnings tomorrow morning, 12/11/2014 before the market open.
Over the last eight quarters of earnings, LULU has traded with mixed results, closing higher or lower evenly, four out of eight sessions following the EPS release. LULU has been a volatile post-earnings mover during this period of evenly distributed investor-sentiment reactions, posting an average historical move of 9.9%. The options market is currently pricing in a move that is fairly in line with this historical average, preparing for about a 9.6% move in LULU by this Friday’s weekly expiration, representing what would be about a $4.60 change in the price of the underlying stock. Despite being down on the year, the recent technical trend in LULU has been largely bullish over the last two months, maintaining a consistent uptrend after testing the 40.00 support level in early October. LULU’s daily chart is also pointing to a bullish continuation, as the stock price remains above the relevant moving averages and well over the upward sloping Ichimoku Cloud. For these reasons I will be looking to establish a bullish position in LULU going into tomorrow’s earnings report.
Trade: Buying the LULU Dec 12th Weekly 51-52 Call Spreads for $0.25
Risk: $25 per 1 lot
Reward: $75 per 1 lot
Breakeven: $51.25