It’s great to be back with you in the new year! Toward the end of 2011, the market was as volatile as I can ever remember. I’ve been patient on entering new positions, waiting for a stock to present itself to me, all gift-wrapped and ready.
And when it comes to Lululemon Athletica (NASDAQ:LULU), you can call this trade a late-arriving Christmas present! Here’s why…
The other day, LULU was up big on my favorite item of news.
How big? The stock was up 13% on the day with almost 14 million shares traded (compared to an average daily volume of 2.7 million shares).
You would have thought LULU announced a crushing earnings announcement, surprising everyone to the upside, but it didn’t.
(Again, the reason for the big day was my favorite reason for getting involved with a stock … more on this later!)
One-day, out-of-the-blue action like what just happened on LULU is compelling. I call it a train wreck. A train wreck in the sense that if you were driving down the highway and looked off to the side and saw smoke, fire, twisted steel and fresh dirt mounds because of the scattered train cars — you wouldn’t be able to help yourself … you’d HAVE TO LOOK AT IT!
That’s the same with LULU — you have to look at it.
Taking a glance at LULU over the past several months, it’s been quiet and on the back burner, trapped in a range, “building a base” as the technicians say.
And while this huge one-day action didn’t bust the stock out of it’s trap, it’s definitely attention-getting. Mostly for the reason that LULU is now very close to its 52-week high. While 52-week highs are not all created equal, LULU is getting very near making one of my favorite 52-week highs.
The other nice thing we’ve got here is the overall market cycle. If you’ve tuned into my other articles, I’ve mentioned this before. Just like the planets cycle through their orbits, the human herd gets in and out of the stock market in general, which creates cycles. Up cycles and down cycles. Those institutional humans especially drive these stock market cycles!
As the cycle goes right now — the market has picked itself off the mat and is presently in an up cycle … taking 3 out of 4 stock with it (which studies have pointed out for decades … approximately 75% of stocks flow the way of the market cycle).
So we’ve got an individual stock with reasons to get involved, plus we have the wind at our backs because of the favorable stock market cycle.
So what’s the trade?
Well considering we still have a very volatile market on our hands, there are some awesome things we can do! Especially considering that LULU has weekly options available to trade on it.
So let me be clear. My premise for this trade is this:
1) LULU trades higher in the intermediate term (over the next 1-2 months).
2) The market’s still a volatile place out there.
3) LULU options will likely be more pricey and volatile, especially between now and March (sometime in mid March is when LULU will announce earnings).
4) Even if LULU has some sideways weeks, I still want to be able to make money.
5) I have a limited, fixed downside. Which means I can sleep comfortably at night, each night of this trade.
6) The trade has reasonable margin requirements.
So here are the trades I did on LULU on Jan. 10:
I call it a “Money Press” trade. The technical term for a money press is doing a put credit weekly calendar spread. Whoosh, that’s a lot of words, but here’s what it looks like:
(It’s designed to put weekly income in our pockets, FYI.)
For the full details on this trade, go to Page 2.