Lululemon Athletica inc. (LULU) has been a yo-yo of a stock if there ever was one. Especially of late.
See, in the early days of the cyclical bull market (2009 to 2012) LULU stock was a hot commodity. One delivering gains month after month with nary a setback. Post-2012, however, it’s been yo-yo town.
From $80 to $40 to $70 to $45, Lululemon stock has taken shareholders on a wild ride. This year the Canadian-based apparel retailer is treating investors to substantial profits. Especially on a relative basis: LULU is up 18% year-to-date, outperforming the S&P 500’s 3% loss by a landslide.
On the technical front, LULU’s latest advance has taken shares above all its major moving averages. While the sideways drift in its 200-day MA reveals a long-term trend stuck in neutral, the rising 20- and 50-day MA are broadcasting short-term strength.
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The recent tug-of-war between buyers and sellers has delivered an ascending triangle of sorts, which looks to be serving up a clean breakout opportunity.
Resistance in the $63.50 zone has halted the past few advances in the stock, but buyers are becoming increasingly aggressive. If the bulls’ advance continues, a breakout will transpire signaling a new advance is beginning.
A number of resistance levels loom in the $67 to $70 zone, so consider that area the next target for LULU’s ascent should the expected breakout succeed.
Stretch Into a LULU Call Spread
The implied volatility of LULU stock options isn’t really high or low these days making derivatives neither outrageously expensive nor super cheap. Long call spreads may not be a bad way to go here.
Buy the June $60/$65 call spread for around $2.45. The vertical spread consists of buying to open the $60 call while selling to open the $65 call. The max loss is limited to the initial $2.45 debit and will be forfeited if Lululemon sits below $60 at expiration.
The max gain is limited to the distance between strikes minus the net debit, or $2.55, and will be captured if LULU can rise above $65 by expiration.
By using June options we give the stock ample time to make the requisite move to the $65 level.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
