Lululemon Athletica inc. (LULU) is showing its flexibility.
The ongoing rally in LULU stock has shifted from kinda stretched to really stretched, and yet buyers keep piling on. If its recent action is any indication more upside looks to be in the offing.
The tale of LULU stock for the past 18 months has been an exciting one, to say the least. The stock went from hero to zero and back to hero again in a relatively short time span. LULU is the poster child for momentum stocks. It has volatility in spades and a penchant for outsized earnings gaps.
Since deciding to bottom in the mid-$30s, LULU stock has been on a veritable tear. It seems hellbent on returning to its former glory in the $80 range. The aggressiveness of buyers is revealed in the absence of any major pullback over the past month. You have to go back to the beginning of December before finding any back-to-back down days.
Since its latest up gap LULU has been consolidating in a tight range. With Thursday’s pop, the stock is now knocking on the door of another breakout.
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LULU Options on the Cheap
The implied volatility for LULU options has descended to the basement, creating some interesting opportunities. With the IV rank sitting at 15%, option premiums are cheaper than they’ve been in a number of months.
Owners of LULU stock interested in simultaneously reducing the cost of their position while maintaining exposure to additional upside in the stock should consider the ol’ stock replacement strategy. Basically, you sell the shares you own and swap them out for long call options.
Consider using the Mar $60 calls, which cost about $5.50 at last check.
Would-be buyers of LULU can also take advantage of the cheaper options by simply buying call options. The aforementioned Mar $60 calls should do the trick. The max risk is limited to the initial premium paid for the call, while the potential reward is unlimited.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
