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Credit Spread – Lululemon Athletica Inc. (LULU)

This short-term trade should pay you while LULU stock dips


Now that winter is slowly fading away, it may be time to get back to being active and working out. Here is a trade idea on a company that can make you look great while you try to lose those inches and possibly increase the size of your portfolio.

Lululemon Athletica Inc. (NASDAQ:LULU): Call Credit Spread

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The trade:  Sell the May 80/85 Call Credit Spread (selling the May 80 call and buying the May 85 call) for 60 cents or better.

The strategy: Lululemon designs, manufactures and sells athletics and yoga apparel worldwide. Last month the company had a little problem with some of its yoga pants which pushed the stock lower at the time. Since then, the stock has come roaring back. So why the bearish strategy?

This trade idea is not based on the long-term projections of the stock that incidentally look good based on the company’s fundamentals. The idea is derived from looking at a one year chart on the stock. The stock has not been able to close above $78 since May 2012 and hasn’t closed above $78 since September 2012. It is currently forming a triple-top reversal pattern. The stock has moved from about $62 to where it’s currently trading in just about a month. The stock is definitely due for a pullback and it needs to do it below $80. There is no doubt that LULU may be trading well above $80 someday, but let it be after May expiration.


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No positions held at the time of publication.

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